Supply distortion has led to temporary rent stabilisation in some areas of Dubai, while in other parts rents are continuing to rise due to a lack of supply caused by removal of inventory and the summer season, says a report.

Landmark Advisory, a leading real estate consultancy firm, today (August 24) released its August 2009 lease guide for the Dubai market. The monthly guide is the fifth to be released this year.

“The increasing rents can be attributed to a lack of supply; many landlords have removed inventory from the market to avoid renting out at current market rates while others may be out of town during the summer period and consequently unavailable,” said Charles Neil, CEO of Landmark Advisory.

“We predict that the month of Ramadan will also affect the leasing supply as many landlords are waiting until Q4 09 to reassess the market,” he added.

The report highlighted that demand for property was particularly strong during June and July due to a significant amount of rental contracts ending around this timeframe. However, the marginal rent increase triggered by this is recognised as unsustainable by Landmark Advisory.

“The large amount of rents ending during the same period ultimately creates a temporary supply distortion following a period of particularly strong demand,” explained Neil.

Rents in many areas of Dubai have decreased significantly over the past 5 months, but despite this, there are exceptions to this trend with some unit types in preferred developments performing well.

These unit types have either returned to March 2009 rents, or in some cases, increased.

Apartments of good quality in Dubai Marina have increased by 11 per cent for 1-bedroom units and by 6 per cent for 2-bedroom units while 3- and 4-bedroom villas in Arabian Ranches and 3-bedroom villas on Palm Jumeirah have returned to March 2009 rents or increased marginally.

Neil pointed out that although rents for 1- and 2-bedroom apartments in Dubai Marina are increasing, the rents for studios and larger 3- and 4-bedrooms apartments have declined.

“These rental trends are, of course, highly correlated with emerging demand patterns. Preferred areas and unit types will be the first to recover in terms of rents. Tracking these specific units over the past 5 months indicates that rents in these areas are sustainable,” he said.

“These findings are in line with our Q3 09 Dubai and Abu Dhabi research report which showed that 1- and 2-bedroom apartments and 3- and 4-bedroom villas were the most sought after unit types in the leasing market,” continued Neil.

The price map also shows a continued upgrading trend with key factors for relocation demand being location, quality and size.

The research shows that relocation demand is continuing to drive the leasing market with demand still coming from Abu Dhabi and Sharjah as well as from within Dubai. A continued upgrading trend is also evident with location, quality and size being the key factors for relocation demand.

Landmark Advisory predict that most residential areas in Dubai are subject to further fluctuation, especially as new supply comes onto the market in the next 12-24 months.

“If rents do come down further for these areas then we expect additional relocation demand as long as landlords adapt pricing strategies. Of course, this relocation demand will help to mitigate any further rental declines,” explained Neil. – TradeArabia News Service