Rents in Dubai fell less than expected due to developers holding back

Rents in Dubai have fallen less than expected as developers slowed the pace of project completions and hand overs due to a projected oversupply, according to a new analysis report.

As a result apartment rents have fallen by 2% on average and villa rents by less than 1% since the beginning of the year yet at the same time demand has remained strong, according to the mid year review from Asteco.

Noteworthy tenant movement including downsizing, upgrades and moves to better value for money properties. One of the key trends noted during the second quarter of the year was families making the decision to downsize to smaller units and send family members back to their home country as a cost saving measure, the report suggests.

There was also an increase in residential sales with bulk buyers and investors remaining the main purchasers, however, Asteco expects an increase in single unit buyers, especially for nearly completed or finished properties.

According to data from the Dubai Land Department the number of residential sales picked up significantly in the second quarter of the year with growth of 15% for apartments and 14% for villas compared with the first quarter of the year. The figures, however, did remain below levels recorded in the fourth quarter of 2015.

In the apartments sector Asteco noted an increase in interest from bulk investors, who were seeing value and potential in the market. This led to several large deals concluding and the report says there also appeared to be a substantial amount of interest in Jumeirah Village from end users and investors. Buyers are seeing the community’s potential and attractiveness from a locational point of view in comparison to newer projects launched south of Mohamed Bin Zayed Road.

Despite these increases in the number of sale, prices continued to be under pressure in most communities, with an overall price reduction of 3% during the first half of 2016. Villa prices were broadly stable with an average increase of 0.3% recorded, the first since rates peaked in the second quarter of 2014.

The trend seen last year continued during the first half of 2016, whereby end-users, rather than investors, were the predominant buyers of villas and townhouses, with a clear preference for smaller two, three and four bedroom units.

Rental performance for apartments was closely linked to the handover of supply, which slowed down considerably during the first half of the year. Overall rental rates decreased by 2% as only approximately 3,000 apartment units were handed over, which were mostly mid-range and affordable accommodation.

The report says that despite strong demand for smaller apartments, the delivery of new stock included a large majority of affordable studio to two bedroom units, pushed rental rates down by 4%, on average. In comparison, affordable three bedroom units recorded only a 0.5% decrease over the first half of 2016, as these units were in low supply. Larger units in the high and mid-end segment saw rents fall by an average of 3%.

The report points out that private landlords were willing to negotiate rental rates upon renewal in order to avoid tenants moving out, especially when discussions began months before tenancy contracts were due to expire. However, many corporate landlords were slow to negotiate terms and this led to a temporary increase in vacancy levels in certain locations.

Rental rates for villas fell by less than 1% in the first half of 2016 as limited new supply was handed over and occupancy rates improved in recently handed over communities. The report says that a shift in demand was noted as tenants upgraded to better value for money properties, for instance moving out of Al Furjan and in to Jumeirah Park, where larger units at a lower price were on offer.