Lease rates have continued to decline across Dubai in the last two months irrespective of quality and location, for both residential apartments and commercial units, said a report.

Declines are primarily attributed to increasing supply, a trend that will continue with 100,000 new units anticipated for delivery over the next two years, according to the June lease guide for Dubai released by Landmark Advisory, one of the leading real estate consultancies in the Middle East.

Although the units in lower quality buildings and less prestigious locations are experiencing the strongest rent declines, the more significant trend is the resumption in rent declines for high quality units in prestigious locations, the report said.

“Tenants are increasingly seeking more value for their rental dirham and are able to leverage alternative options to negotiate very attractive deals,” said Jesse Downs, director of research and advisory services, Landmark Advisory.

“This is pushing up bid-ask spreads and illustrates that landlords are conceding in negotiations with ever more discerning and value-seeking tenants.”

“More significantly, this is a trend now observed in high quality units in prestigious locations, which is a segment that has experienced relatively minimal volatility in late 2009 and the first quarter of 2010 due to relocation trends,” she added.

Rental demand in Dubai has been bolstered by tenants relocating from surrounding emirates, namely Abu Dhabi with landlords in Dubai benefiting from tenants moving to Dubai to take advantage of both lifestyle and lower rental rates, the report added.

“The imminent delivery of Abu Dhabi’s Marina Square will inevitably sway existing or potential commuters to rent an apartment in Abu Dhabi, however, which will clearly hurt rental demand in Dubai,” said Downs.

“Rents in the capital are coming down and will continue to do so, especially in Q4 2010 and Q1 2011.”

Landmark Advisory report said that rents even in prestigious locations such as Palm Jumeirah and JLT are declining. Well established areas with a limited supply pipeline are also experiencing additional rent declines.

Downtown Dubai has seen further drops in rent due to continued supply entering the market in neighbouring areas, like Business Bay and Sheikh Zayed Road.

“While these areas are not of comparable quality to Downtown Dubai, the impact on this increased supply is evident, lower limits for two-beds in Downtown Dubai are falling 5 per cent, at the same time that lower limits in Business Bay and Sheikh Zayed Road have fallen by 12 per cent and 6 per cent respectively since the beginning of May,” said Downs.

“Unlike the trends in April 2010, where the rental declines were primarily restricted to lower and medium quality buildings, high quality buildings in good locations are also seeing rental drops,” explained Downs.

“While the falls are still marginal when compared to the drops in lower quality buildings, this is still a significant trend.”

According to Landmark Advisory, villa lease ranges have been much more stable then apartment rates, however, some areas are still experiencing declines.

“While some villa rents did fall, they did not fall in every area and rents for certain high quality villas have remained stable,” Downs said.

“Since this segment is particularly sensitive to demand fluctuations, rents for specific high end villa developments may experience short term fluctuations.”

In terms of commercial units, rents have declined and are expected to decline further. Landlords are attracting new tenants by offering lower lease rates, longer term leases, and increased incentives such as rent-free periods, fit-out allowances, and increased cheque options, the report said.

“The commercial market is witnessing a prolonged period of oversupply, and with new developments in Business Bay, and JLT expected for completion in 2010 and beyond, lease rates are expected to decline further across Dubai,” Downs said.

“While freehold areas will be particularly impacted by rent declines due to upcoming supply, those buildings with fragmented ownership are likely to be hit the hardest with premiums emerging for single landlord buildings.”

“By this we mean those buildings where buildings were sold by individual units or floors and Strata Law applies,” Downs concluded. – TradeArabia News Service