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Commercial property in Dubai sees slowing rents for the first time

Prime rents in each of the three main commercial real estate sectors remained static in the fourth quarter of 2008, according to commercial real estate services company CB Richard Ellis.

The first signs of levelling in these property sectors is in keeping with much of the recent talk about a property sector slowdown in the region and follows a period of very strong growth since 2007, the research indicates.

However, despite the absence of any growth in the final quarter, rental growth in 2008 as a whole reached 50% for industrial buildings rents, 29% for offices and 18% for retail.

'We are seeing now for the first time a drop of commercial rental prices. Property purchase prices have been coming down for some time now, but rents had until now been holding strong,' said Nick Maclean, managing director of CB Richard Ellis.

Despite this loss of momentum in the rental markets, there was no change in investment yields in the fourth quarter. Dubai offers some of the highest prime yields in the Europe Middle East and Africa region with 11% in the industrial sector, 7.75% in office and 8% in retail and there was no movement in these levels in the final quarter of last year.

Indeed over the year as a whole, only the industrial sector showed any yield change, recording a 50 basis points increase on the year, the report points out

By contrast, much of the rest of the EMEA has been performing slightly differently recently with widespread re-pricing being a notable feature. Yields in the office, retail and industrial sectors across the EU 15 have all now risen 100 basis points or more since the middle of 2007.

And the scale of the re-pricing in most of EMEA could help to close the gap between buyer and seller pricing expectations, and is likely to present attractive buying opportunities for equity rich investors targeting the commercial real estate market.