There is a deficit of Grade A developers in Dubai and Abu Dhabi, says a report which focuses on the developer rating of the top developers in the two emirates.

Landmark Advisory, which advises clients in making well-informed and intelligent real estate decisions, released its latest quarterly report today (February 9). The report further said that low ranking developers will contribute to the ongoing price divergence within the asset classes in both markets. 

“To date, much of the supply already delivered was built by master developers, which rank higher,” said Jesse Downs, director of research & advisory services, Landmark Advisory.

“However, these developers constitute the minority of the total pipeline of units within the next several years. The single-asset developers currently building the bulk of the forthcoming supply have a significantly lower rank and may suffer further credit downgrades as their product is forecasted to overpromise and under deliver,” she added.

“This phenomenon will create a bifurcation between integrated, high-quality units and those poor quality units within fragmented communities where many builders have postponed their developments indefinitely.” 

The evaluation was based on three basic criteria: product quality, customer service, and overall perception.

“Product quality refers to each individual developer’s track record and ability to deliver the product quality promised during the marketing and primary market sale of the unit. In some cases, developers have not delivered any projects locally. In this case, they are graded based on the anticipated quality of their projects,” continued Downs.

Turning to residential sale trends in Dubai, the quarterly sale prices of villas remained unchanged and apartments declined 4.3 per cent during the fourth quarter of 2009.

“While villa prices remain unchanged on average, there is a variance of pricing emerging based on location,” said Downs.

“Sale prices for villa communities along Sheikh Zayed Road – which we refer to broadly as coastal communities – have increased while inland communities have decreased.

As indicated in Landmark Advisory’s latest findings, location and quality are driving apartment prices; while average prices decreased, select communities, including Palm Jumeirah and Downtown Burj Dubai, experienced slight increases.

According to Downs, residential leasing in Dubai has also regressed: “Average villa rents declined 2.2 per cent while average apartment rents declined 3.0 per cent. In select new residential areas, apartment rents have increased which is primarily due to all available residential units having been handed over recently.”

“This type of marginal rent increase usually follows apartment deliveries, propelled by gradual occupancy gains after handover,” Downs added.

Turning to Abu Dhabi, residential sale prices held in the fourth quarter of 2009, but sales volumes increased relative to previous quarters. Landmark forecast that prices are likely to remain stable in the first quarter of 2010.

For the leasing market, Landmark Advisory previously forecasted market-wide declines across Abu Dhabi during the fourth quarter of 2009 which was confirmed by the onset of a rental correction during this period.

“Even high-end units saw their rents fall up to 15 per cent, but, as we predicted, it was low quality units that fared worst,” explained Downs.

“Since Q209, the supply and demand dynamics of Abu Dhabi’s rental market have been changing. The rent declines observed in Q409 are consistent with Landmark Advisory’s analysis throughout 2009.”

Landmark predict that rents are likely to keep declining throughout the first quarter of 2010 as more supply is handed over and landlords become increasingly flexible: “We expect continued relocation from Abu Dhabi to Dubai, which will put further downward pressure on Abu Dhabi rents,” said Downs.

In terms of commercial property, leasing volumes for office space remained low in Dubai whereas they increased in the capital.

“Office leasing transactions in Abu Dhabi have slightly increased during Q409 as more companies try to settle in the local market. This follows two consecutive quarters during Q2-Q309 during which the office market slowed considerably, particularly during the summer months,” said Downs.

“The rent levels for office space in Abu Dhabi are likely to keep declining as more supply is delivered and landlords become increasingly flexible in order to guarantee good occupancy rates,” continued Downs.

“Quality and location will determine whether rents hold, and poor quality units in areas such as Tourist Club Area, Electra Street and the east side of Salam and Hamdan Street are likely to be the hardest hit.”

In Dubai, commercial sales and lease rates declined. Landmark Advisory found that volumes have remained extremely low with existing sales activity primarily in Jumeirah Lakes Towers.

“We expect pricing in both the residential and commercial real estate markets to bifurcate based on quality. This will become an increasingly critical factor in the local real estate markets,” concluded Downs. – TradeArabia News Service