Special Features
Better times ahead for Dubai’s real estate market
Cluttons issued its Dubai market reports for Q4 2010 covering the residential, commercial and industrial sectors within the Emirate. The report highlights that investors’ confidence is restored again in the real estate market in Dubai within specific locations and developments, with the re-emergence of key lenders including Tamweel, one of Dubai’s largest Islamic mortgage lenders, onto the marketplace offering attractive rates to credit worthy clients wishing to purchase quality stock.Residential sector - Pricing Analysis:
Average rental rates have fallen by 3.3% for apartments and 3.2% for villas Sale prices have dropped 2.4% for apartments and 5.1% for villas.
As supply continues to increase, drops in values will be unavoidable. Accordingly we are continuing to see the "flight to quality" in both the sales and rental markets as the more desirable locations become increasingly affordable.
"Lifestyle projects" such as The Old Town, Dubai Marina, Palm Jumeirah, The Meadows and The Greens are continuing to prove more resilient in both the sales and leasing market.
The findings of the report state that buyers now have the financial option to upgrade to a better quality unit in a more desirable location. These improvements on efficiency and quality can only enhance the reputation of the real estate market in Dubai. Effective management is key; landlords with residential units within good locations are encouraged to acquire as much control as possible over service charges and use a reputable good property management company.
Commercial sector - Pricing Analysis: Commercial rents have fallen on average 9% over the past quarter DIFC and TECOM the only two areas so far unaffected by price reductions.
The ongoing construction and completion of commercial projects within Jumeirah Lake Towers (JLT), Tecom C, Business Bay and Silicon Oasis throughout 2010 has placed downward pressure on rents within most areas of the city. Two tiered market in established office districts such as the DIFC, Deira, Bur Dubai and Sheikh Zayed Road have been able to maintain healthier levels.
In contrast to previous quarters, Cluttons is starting to see a slow migration of large multinational firms such as Swiss pharmaceutical giant, Merck Serono into the Emirate. This is an encouraging sign, as Dubai’s affordability starts to make an impact. The key to medium term success is focusing on quality property maintenance and fostering the tenant-client relationship through a flexible approach to leasing.
The fall in office rents will continue unabated as long as new supply continues to be introduced. Landlords who have faired the best throughout 2010 have been those which have been willing to be flexible when negotiating new leases and lease renewals. As well as offering lower rents, the negotiation of longer lease lengths, break options and flexible lease terms are now the mechanisms that must be considered when securing a tenant.
Industrial and Logistics sector - Pricing Analysis: Rents for better buildings are Dhs25-30 per square foot Rents for old stock has dropped below Dhs20 per square foot Even though rents are not increasing, confidence it returning for quality logistics facilities that will support sustained, long term demand in areas such as Jebel Ali (JAFZA) and Dubai World Central (DWC).
A two tier rental market has emerged, with a clear divide between quality buildings that international companies will consider, and older buildings out of prime areas that have become impossible to trade.
The investment market has become more aggressive, with funds focussing on the UAE logistics sector now paying below 10% initial yield for good buildings with long leases. Confidence is also returning to the market, underlined by the Dubai government’s endorsement of DWC when it allowed the first freight service through Al Maktoum airport.
