Re-locations to rise sharply among Dubai tenants in Q2

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With the onset of an early Ramadan followed by summer, rental softening in Dubai is expected to continue for the remainder of 2018.

After being relatively resilient over the last 2 years, the rental market in core apartment and villa districts such as Jumeirah Lakes Towers (JLT), The Springs and The Meadows are starting to see rental drops of 9 per cent and 5 per cent, respectively, estimates Core Savills.

Over 6,000 units were delivered in year to date 2018, says the consultancy. Newer villa districts such as Dubailand and Jumeirah Village have seen a more direct impact of the supply surge, causing rents to decline as landlords get more competitive to avoid long periods of vacancy.

Some of the supply delivered this year include Plaza Residences in Jumeirah Village Circle (900 units), New Dubai Gate 2 Tower in JLT (442) and Serenia Residences on the Palm (250). Over the rest of the year, however, Dubailand will represent almost a third of total handovers.

"Historically, tenants, particularly those with families, relocate in a 2 to 3-year cycle. Many tenants currently initiating relocations were paying higher headline rentals locked in during the 2015 rental peak. With rents now more than 15 to 20 per cent lower than 2015, even in core established districts, many tenants are saving significantly on annual rents by either renegotiating with their current landlords or relocating," says Edward Macura, partner, Core Savills.

Bigger units have seen significantly higher drops compared to studio and 1-beds as higher income occupiers are becoming increasingly cost-conscious or moving up the housing ladder to ownership.

He adds: "Centrally located rental districts with strong demand generators such as connectivity to work clusters and established community amenities are expected to be somewhat resilient, especially for stock that has already adjusted to rental market declines within the 2017-2018 lease renewal cycles."

Sales market
The softened sales market has also made the cost of property ownership lower than the cost of renting for long-term occupiers, making it attractive for tenants to move to ownership. This shift to ownership is also shrinking the rental pool, leading to further downward pressure on rents.

Core Savills forecasts a further 15,500 units to be handed over during the remainder of the year.

Sales prices continued to decline across most communities, with central areas seeing larger declines than outer areas. Downtown Dubai and Dubai Marina saw the sharpest declines at 7.5 per cent and 6.6 per cent respectively, resulting from the large number of new launches within this area, says a Core Savills report.

JLT and Emirates Living have seen new launches within the community, in addition to witnessing demand shifting to Jumeirah Village as products with similar or lower price points and newer build quality become available.

Communities with multiple phased deliveries such as Mira, Mudon and Arabian Ranches have also cast a significant downward pressure on The Springs and The Meadows' sales market. Dubailand was the only community to see a visible rise in apartment sales prices at 2.7 per cent. This is due to the fact that most new sales activity is concentrated within this area with lower entry prices driving sales.

"The cascading effect of new stock impacting secondary sales prices, either within the community or in adjoining areas, is one of the strongest reasons causing a delay in sales price recovery," observes Macura.

"However, this hasn't significantly dampened occupier sentiment due to the wide variety of options now available at very competitive prices by developers in new launches," concludes Macura.

- deepthi@khaleejtimes.com