Dubai's average residential rents decreased by less than 1 per cent

Dubai's average residential rents decreased by less than 1 per centApartment rents declined by more than 5 per cent in the Palm Jumeirah / Image Credit: Supplied

Although the market has not bottomed out yet, there is indication that this could happen sooner. The recent third-quarter results are an indicative of that. Alongside falling sale prices, Dubai's average residential rents have decreased by less than 1 per cent between last two quarters, according Reidin's Rent Price Index. Not substantial, but analysis of key submarkets shows that rental performance has been more variable, with some pockets registering greater fall than the average rates.

With the number of offplan projects launched over the last few years, together with project announcements made, the total supply could increase to nearly 70,000 units (apartments and villas). ''These deliveries could lead to a continued downward pressure on rents, making Dubai once again a more affordable place to live and work,'' says John Stevens, Managing Director of Asteco. ''This will also force landlords to become more competitive with offers adapted to end-user demand.''

Stevens reveals that some landlords have already increased the number of instalments and in some cases even offered rent-free incentives. ''This trend was especially apparent around Al Nahda and Al Qusais where effective rental rates were down by 2 percent. After the decline witnessed in the second quarter, overall rental rates in the third quarter remained broadly unchanged, albeit with some upward and downward adjustments in select areas.''

The biggest decrease

Analysis of submarkets suggests there are some pockets that witnessed a steeper fall than average. ''The greatest percentage decrease in rents over the period Q2 2015 to Q3 2015 was experienced in Jumeirah Village, where average rents for villas in Jumeirah Village Circle (JVC) decreased approximately 6.9 per cent and 6.5 per cent for villas in Jumeirah Village Triangle,'' says Martin Cooper, Director, Real Estate, Deloitte.

He says Jumeirah Lakes Towers, Dubai Sports City (excluding Victory Heights) and prime apartments in Dubai International Financial Centre (DIFC) were the only submarkets to enjoy positive quarterly rental growth of 0.5-1.1 per cent.

However, analysts say average house rents in Dubai have fallen by about 2.5 per cent from the fourth quarter last year to the third quarter this year, although this masks rental decline of more than 5 per cent in Arabian Ranches, DIFC (prime apartments), JBR and Jumeirah (apartments), and 11.9 per cent in JVC (villas).

Erik Volkers, Senior Consultant, Research and Consultancy at CBRE Middle East, sees a continuing flight to affordability with relatively strong demand for rental apartments in more affordable locations such as JVC, Dubai Sports City, Dubai Motor City, IMPZ and Dubai Investments Park. ''Although marginal, we are witnessing small average rental declines in the more prime areas such as Dubai Marina and the Jumeirah for apartments.''

Rental decline in these submarkets can partly be attributed to increased supply, with the addition of approximately 1,000 units in JVC, the handover of Central Park Towers in DIFC and a number of villa projects close to Arabian Ranches. Another factor contributing to rental decline in more expensive submarkets, such as the Jumeirah, is the emergence of more affordable areas, which are driving supply growth in Dubai.

''The flight to affordability seems to be impacting the more prime residential areas such as Downtown Dubai, Dubai Marina and Jumeirah. The availability of existing supply and the substantial amount of new supply being delivered into the market gives tenants options to choose from,'' says Volkers, adding that location, building quality, amenities and the reputation of the developer are still the main factors influencing rental rates in the market.

While global economics have certainly reduced investor sentiment and impacted the residential sales market, Volkers says rental declines are predominantly attributed to price correction due to market stabilisation.

Robin Teh, Country Manager at Chestertons UAE, agrees, ''We believe the market is in a self-correcting phase, which was driven by weakness in economic conditions across the region and increase in supply.''

He says it's a matter of phasing and all communities will have to absorb correction eventually before the market moves on to recovery phase. ''There are concerns regarding supply, however, delay in completion could balance it out,'' says Teh.

Final stretch

The decline in the Rent Price Index between the last two quarters does not reflect the same rate of decline seen in average residential sales prices across Dubai, which fell by about 3.2 per cent, contributing to a 12-month decline of 10.9 per cent, according to Reidin's Sales Price Index for Q4 2014 to Q3 2015.

For the remainder of the year, industry observers forecast relatively flat growth in residential rental across Dubai, with some pressure on prices in areas of significant new supply. ''Looking ahead to 2016, while there may be a softening in rental prices, we do not anticipate this will be on the same scale as sales prices,'' says Cooper. In 2016, he says the rental market should be able to absorb planned new supply, however, landlords might need to reassess their rental expectations in line with the current market to ensure minimal periods of vacancy and maintain competitive investor returns.

''We expect the fourth quarter to show a continuation of recent performance trends, with stabilising/declining sales and rental rates expected across most areas,'' says Volkers. ''The delivery of a new residential supply will only serve to add further pressure to the market over the remainder of the year.

''While both rental and sale rates are under pressure and there is substantial amount of new supply, the residential rental market is still relatively strong. Projected economic and population growth will still be the main drivers for additional future demand.''

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Source: S. A. Kader, Special to Property WeeklyPW


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