Special Features
Landmark Advisory June 2010 Dubai Leasing Guide: Premiums To Emerge For Single Owner Office Buildings
Landmark Advisory, one of the leading real estate consultancy companies in the Middle East, today released its June lease guide for Dubai. The rent ranges published in the leasing guide – available at www.landmark-advisory.com – combine transactional data with mystery shopping and broker surveys and are prepared by the analysts at Landmark Advisory.Compared to Landmark Advisory’s last Dubai lease guide published in April 2010, the latest guide shows that lease rates have continued to decline across Dubai irrespective of quality and location, for both residential apartments and commercial units. Although the units in lower quality buildings and less prestigious locations are experiencing the strongest rent declines, the more significant trend is the resumption in rent declines for high quality units in prestigious locations. Declines are primarily attributed to increasing supply, a trend that will continue with 100,000 new units anticipated for delivery over the next two years.
According to Ms. Jesse Downs, Director of Research & Advisory Services, Landmark Advisory, the biggest problem is the impending supply pipeline: “Tenants are increasingly seeking more value for their rental dirham and are able to leverage alternative options to negotiate very attractive deals. This is pushing up bid-ask spreads and illustrates that landlords are conceding in negotiations with ever more discerning and value-seeking tenants. More significantly, this is a trend now observed in high quality units in prestigious locations, which is a segment that has experienced relatively minimal volatility in late 2009 and the first quarter of 2010 due to relocation trends.”
Rental demand in Dubai has been bolstered by tenants relocating from surrounding emirates, namely Abu Dhabi with landlords in Dubai benefiting from tenants moving to Dubai to take advantage of both lifestyle and lower rental rates. “The imminent delivery of Abu Dhabi’s Marina Square will inevitably sway existing or potential commuters to rent an apartment in Abu Dhabi, however, which will clearly hurt rental demand in Dubai,” said Ms. Downs. “Rents in the capital are coming down and will continue to do so, especially in Q4 2010 and Q1 2011.”
Residential - Apartments
Landmark Advisory notes that even rents in prestigious locations are declining; lower limits for a 1 bedroom on the Palm Jumeirah have fallen 6%, while 1 bedroom apartments in JLT have fallen a further 10% since publishing the previous lease guide. In lower quality areas such as International City, studio lower limits decreased 12% while upper limits for both studio’s and 1 bedroom apartments decreased on average by 22%. The lower limit of lower quality 2 bed apartment’s in both West and East Dubai have also declined by an average of 7% since early May.
Well established areas with a limited supply pipeline are also experiencing additional rent declines; Downtown Dubai has seen further drops in rent due to continued supply entering the market in neighbouring areas, like Business Bay and Sheikh Zayed Road. “While these areas are not of comparable quality to Downtown Dubai, the impact on this increased supply is evident, lower limits for 2 beds in Downtown Dubai are falling 5%, at the same time that lower limits in Business Bay and Sheikh Zayed Road have fallen by 12% and 6% respectively since the beginning of May,” said Ms Downs.
As the mounting competition to attract tenants leads landlords to offer more concessions, a 6-check contract and incentives like rent free periods to assist tenants with days lost during the moving process are becoming more common.
“Unlike the trends in April 2010, where the rental declines were primarily restricted to lower and medium quality buildings, high quality buildings in good locations are also seeing rental drops,” explained Ms. Downs. “While the falls are still marginal when compared to the drops in lower quality buildings, this is still a significant trend.”
Residential - Villas
According to Landmark Advisory, villa lease ranges have been much more stable then apartment rates, however, some areas are still experiencing declines. Areas including Arabian Ranches, Victory Heights, Jumeirah Islands, The Springs, Dubai Silicon Oasis, sections of the Lakes and parts of Palm Jumeirah have all seen lower limit declines.
The largest declines occurred in the lower limits of 5 bed villas; in Jumeirah Islands and Dubai Silicon Oasis, 5 bedroom villas declined by 7% and 13% respectively. For 2 beds, lower limits in The Springs declined 6% (with rents as low as 75,000 AED) while in Victory Heights, Palm Jumeirah, and Dubai Silicon Oasis the 3 Bed lower limits declined by an average of 6%.
Ms. Downs said: “While some villa rents did fall, they did not fall in every area and rents for certain high quality villas have remained stable. Since this segment is particularly sensitive to demand fluctuations, rents for specific high end villa developments may experience short term fluctuations. For example, the lower limit rent for a 5 bedroom villa on Palm Jumeirah is currently at AED 400,000 per annum. Given the limited pool of individuals and families able to afford such a luxury villa, the rents may fluctuate based on longer void periods.”
Commercial Rents
In terms of commercial units, rents have declined and are expected to decline further. Landlords are attracting new tenants by offering lower lease rates, longer term leases, and increased incentives such as rent-free periods, fit-out allowances, and increased cheque options.
According to Ms. Downs, location and incentives are set to play a key role in attracting tenants going forward: “The commercial market is witnessing a prolonged period of oversupply, and with new developments in Business Bay, and JLT expected for completion in 2010 and beyond, lease rates are expected to decline further across Dubai.”
In terms of specific areas, DIFC lease rates lower limit has decreased by 17%, commercial units in Business Bay have decreased 6% and Dubai Silicon Oasis has decreased 20%.
“While freehold areas will be particularly impacted by rent declines due to upcoming supply, those buildings with fragmented ownership are likely to be hit the hardest with premiums emerging for single landlord buildings. By this we mean those buildings where buildings were sold by individual units or floors and Strata Law applies,” Ms. Downs concluded.
Landmark Advisory’s latest lease map for Dubai is available for download at http://www.landmark-advisory.com.
