Rents decline 13% in Q3 but DIFC and DHCC remains stable

Office rents in Dubai have declined 13 per cent in the third quarter of 2009 compared to the previous quarter due to increased supply of office space in the emirate, said Asteco.

Only the Dubai International Financial Centre (DIFC) has seen a positive movement in office rentals marking an increase of about six per cent in the last one quarter, it added.

According to the latest third quarter report on Dubai real estate market by the Dubai-based property consultancy, the average office rental rates ranged around Dh350 per square feet per annum for private developments, while in DIFC the rental rates were about Dh500 per sq ft per annum in the third quarter of this year. “This is due to the fact that there are very few small units available as companies tend to lease long-term.”

“Rental rates in Dubai Healthcare City (DHCC) remains stable as the free zone caters to a specialist industry. As is the case for apartments and villas, demand remains low for office units alongside Emirates Road. Other areas such as Tecom and Media City suffer from oversupply as many towers have been handed over in the last few months,” said the report.

The office sales prices across Dubai have seen no change since the previous quarter, due primarily to the economic downturn and companies being uncertain about future developments. Companies are opting to lease due to decreasing rental rates and ease of exit.

Meanwhile, tenants and landlords are working towards lease agreements of up to 10 years, with regular reviews, to replace the current short-lease terms. This will be beneficial to both parties as landlords can secure rental income for longer periods and tenants are able to spread upfront costs such as fit-out over a number of years.

The recently launched Dubai Metro is likely to have a positive effect on take-up in these areas, although it is too early to say to what extent. Deira will also become increasingly popular with three Metro stations within a five sq km radius.

Dubai recorded an increased number of existing offices branching out. The government has also taken steps to entice more company start-ups by choosing not to increase government fees and by making trade licence registration available on-line. The expected passing of laws currently under consideration which could extend the entitlement to 100 per cent foreign ownership may have a downward effect on rental rates in free zones and there will likely be a greater level of parity between free zones and non-free zones.

This is however unlikely to have a major effect on inflow and outflow as companies still benefit from simplified procedures as well as the availability of similar or supportive industries within the free zones.

Asteco said office supply in Dubai would substantially increase over the next six months, with the majority of the supply to be located in new business areas such as Jumeirah Lakes Towers, Business Bay, Tecom and Dubai Silicon Oasis. With supply continuing to surpass demand, competition among landlords will tighten, resulting in greater incentives for tenants.

Transaction and enquiry levels for the office market in Dubai are lower than for apartments and villas.

There is some interest in completed units, which are sized in the range of 1,000 sq ft to 3,000 sq ft area.

The sale prices for Downtown Burj Dubai, namely Emaar Square, have held their value due to its prominent location, established development, accessible facilities and amenities and the limited number of completed offices in the surrounding developments.

“Piecemeal developments such as Jumeirah Lake Towers, Jumeirah Village and Downtown Jebel Ali are the most affordable office properties for sale due to the sheer numbers of offices available and under construction. Many of these developments do not have sufficient facilities yet to warrant sales values in line with values such as Emaar Square,” said the report.

The apartment sales prices for completed projects in Downtown Burj Dubai have seen the highest quarter-on-quarter increase of about eight per cent up from Dh1,200 per sq ft in the second quarter to Dh1,300 per sq ft in the third quarter.

Situated as it is in the centre of Dubai, it is also a desirable community in which to rent and, therefore, a good investment for buyers. Jumeirah Beach Residence has seen a five per cent sales increase as a result of the continuous opening of retail units, gyms nearing completion, and strong interest in leasing from both Dubai and Abu Dhabi residents. In terms of villa communities, Springs and Arabian Ranches are faring well with Dh800 and Dh850 per sq ft respectively.

Transactions and enquiries have picked up in line with mortgage availability and those who could not afford to buy a unit at the peak of the market are now taking advantage of lower prices. Demand is predominantly for smaller units such as studios and one-bedroom apartments, or two- and three-bedroom villas or townhouses due to the price point, said Asteco.

Across Dubai, sales prices for apartments and villas have increased slightly with on average of one and three per cent respectively, compared with the second quarter of 2009. The report said the increased interest in completed communities has resulted in landlords inflating their prices. In addition, the option to lease these units is making price negotiations less flexible as the need to sell to generate income is lower.

The apartment and villa rental rates have seen minimal changes of three and zero per cent respectively in Q3. Rates for studios and one-bedroom apartments are beginning to stabilise.