Property costs in Dubai are likely to rise more slowly, or even fall, in the next two years as completed malls, offices, apartments and hotels flood the market, real estate consultancy Colliers International said.

Dubai, part of the UAE federation, kicked off the GCC real estate boom in 2002 by allowing foreigners to invest in its property market.

Property prices and rents for homes, offices and shops have surged since then, triggering more investment in real estate developments. Colliers estimated Dubai had more office space under construction than any city except Moscow last year.

'Many developers have overlooked one of the most salient aspects of real estate: maximising development returns is not purely a function of building as much as possible,' Colliers said in a report.

The 7 per cent ceiling the government has imposed on residential rent increases would soon become unnecessary as more apartments and villas are completed, it said.

Landlords were likely to reduce the impact of the downturn by keeping buildings empty rather than renting them out at lower rates, Colliers said.

'The market behaves much like that of an oligopoly...,' it said, estimating that 30 per cent of the completed apartments in the Dubai Marina development were vacant in the second quarter. The Marina's developers include Emaar Properties.

The consultancy was more bearish about the market for office space, estimating the area available for commercial leases will more than triple to 5.6 million sq metres from 1.6 million sq m now.

That would start hitting office property prices as early as the third quarter of next year as rents fall, Colliers said.

The retail rental market is also bracing for a flood of supply. Colliers said it expected the total retail space available in Dubai to more than double to over 4 million sq m.

'Smaller and older malls are likely to experience sharp increases in vacancies coupled with downward pressure on rental rates,' Colliers said.

The number of hotel rooms will grow at around 33 per cent a year through 2011, Colliers said, estimating occupancy rates would fall closer to 60 per cent compared with more than 80 per cent in 2005.

'The massive increase in supply is expected to cause hotel operators to adopt more competitive pricing schemes...,' it said.

Around six million people visited Dubai last year, more than any Arab destination except Egypt.Reuters