Apartment rents have plummeted across Dubai with the biggest decline of 27 per cent in areas such as Dubai Marina, JLT and The Views, mainly due to the handover of new buildings, according to real estate firm Landmark Advisory.

Landmark Advisory in its 'November 2010 Dubai Leasing Guide' stated that increasing supply continued to impinge on rental rates.
The lease rates in Dubai have significantly declined across the market since June with very few exceptions, it added.

'The lower limit for a high quality 2-bed in Dubai Marina has declined by 27 per cent since June, whereas a comparable unit in Downtown has only declined by 6 per cent in the same period, remarked Jesse Downs, director of Research & Advisory, Landmark Advisory,.

Downs pointed out that the most significant challenge would be the impending supply pipeline. “Tenants realise it is currently a renters’ market and want more value for their rental dirhams and, so, are able to leverage alternative options to negotiate very attractive deals,' she noted.

'Some developers and landlords are finally realising the implications of this supply pipeline and are slashing rents by up to 20-30 per cent below market rates in order to achieve higher occupancy in newly handed-over buildings,” Downs added.

Going forward, Landmark Advisory predicted that lease rates will continue to decline, especially in areas which suffer from maintenance and infrastructural issues.

“Rents are often an illustration of the quality of the community, including building maintenance and infrastructure. The most significant recent rent declines are in areas with maintenance and infrastructural issues,” said Downs.

According to her, the increasing supply has and will continue to put a strain on rental rates and landlords need to be acutely aware of the market when considering how to price their units.

“Landlords of newly handed-over units are willing to severely undercut market rates to achieve occupancy. While some may claim this is an anomaly, these properties are setting the new market rates. While rents will continue to fall across Dubai, these new pricing strategies have particularly significant implications for the areas with the most substantial supply pipelines,' she stated.

When considering the aggregated supply and demand dynamics across Dubai and Abu Dhabi, Landmark rents will decline in spite of the Abu Dhabi commuter demand, said Downs in the report.

“We estimate that average vacancy rates in Dubai are currently 15-18 per cent but will increase to 19-24 per cent by 2012. Even considering the Abu Dhabi commuter demand, it is clear that average rents in Dubai will continue on a downward trajectory,” she added.

Landmark Advisory said it monitored the outcomes of divergent rental strategies comparing the pragmatic and rigid approaches of owners.

'We tracked occupancy levels of three new buildings in Dubai Marina, all with similar handover dates and of comparable quality,' explained Downs.
 
'Within three months of handover, the building priced to attract tenants has already achieved occupancy of 90 per cent. In comparison, the building with high rates and a rigid pricing strategy only has 40 per cent occupancy,” she added.

Apartment rents in lower quality properties continue to deteriorate – in this context, quality refers to the current state of the building, quality of maintenance, and condition of the community.

'For example, the lower limit for studios in International City has fallen 38 per cent since June 2010 (from Dh22,000 to Dh16,000 per annum).

“Of course, these declines are caused by increasing supply in the area and overall rental trends in Dubai. However, the severity of the lower limit decline is also attributed to ongoing concerns about maintenance and the community,” Downs added.-TradeArabioa News Service