The lease rates in apartments across the Northern Emirates are witnessing a major fall with the biggest drop recorded in Ajman where rates fell by 28 per cent, said a report by CB Richard Ellis.

This was largely due to excess supply and competition from the neighbouring emirates of Sharjah and Dubai, the real estate expert said in its latest market review.
 
The lease rates in apartments across the Northern Emirates dropped by 18 per cent year on year with Umm Al Quwain registering a 22 per cent decline. Rents fell 21 per cent and 15 per cent in Sharjah and Ras Al Khaimah respectively during the same period, it added.

According to CB Richard Ellis, the office lease rates were now in the range between Dh240 ($65.3) to 700/sqm/pa, with the highest achieved rates being in Sharjah.

The report pointed out that the real estate market continued to face a host of challenges amidst a weakened economic and investment environment.

However, in a bid to stimulate activity and improve overall living conditions in the Northern Emirates, the UAE Government has committed significant new funds towards the development of key infrastructure projects, it stated.

In recent years power shortages have become increasingly problematic, as an expanding population has seemingly outgrown the capabilities of the existing infrastructure, the report said.

The allocation of Dh5.7 billion over the next 5 years will go some way to alleviating persistent problems, with the majority of investment focussed on increasing the production capacity of electricity and water facilities, the report added.

Deflationary pressures persist for poor quality residential products, particularly those further impacted by inferior location, said CB Richard Ellis in its review.

As more residential units enter the market, the importance of providing adequate facilities and amenities has become increasingly clear, and a major consideration in judging the overall appeal of real estate offerings for both end-users and investors, it stated.

This is negatively impacting older stock which typically lacks the same level of specifications and conveniences available in newer comparable property, the report added.

According to the report, the relative affordability of residential accommodation in Dubai continues to impact the Northern Emirates market.

A sustained migration of residents to Dubai has continued during the first half with an increased inventory in the districts of Al Nahda, Ghusais and Muhaisanah.
 
As competition intensifies many landlords in Sharjah have started to include parking and chiller charges within their quoted lease rates.

In some cases agent commissions on initial lettings are also being ignored. With further new residential supply in the pipeline the market is expected to correct further, particularly in less desirable locations, whilst ongoing infrastructure works may also have a negative impact in the interim period.

Rental rates in masterplanned and gated community developments are currently outperforming the wider market with significant premiums being achieved, the report said.

The highest lease rates in Ras Al Khaimah were noted in The Cove project where a one bedroom chalet is currently offered in the range of Dh45,000-55,000/annum, inclusive of access to the facilities and amenities at the Cove Rotana.

Lease rates in the developments of Al Hamra Village and Mina Al Arab are also faring comparatively well with a four bedroom villa ranging from Dh90,000-120,000/annum.

In Ajman, freehold projects that were launched during the market peak have eventually started to see handovers achieved.

Jasmine Towers (Garden City) is one such development.  Further supply of new units is expected from the Garden City project wherein the Almond and Mandarin phases are currently in various stages of construction and anticipated to complete during the next 6-18 months.

Residential units at Julphar Towers in Ras Al Khaimah, which offers 349 residential units, has seen the start of the handover process to investors. The landmark tower project is located prominently on the corniche and is likely to attract significant interest from occupiers.

Other projects in the pipeline which are expected to enter the market in next 6-12 months, include Bab Al Bahr (Marjan Island), Phase 1 of Yasmin Village and further phases of the Mina Al Arab project.

With regard to the office sector, the lease rates across the Northern Emirates were showing signs of greater homogeny as supply continues to exceed demand, the report said.

'Availability of office space within the Free Zone’s (with the exception of Umm Al Quwain) continues to encourage international occupiers who are seeking to benefit from the incentives offered by the Free Zone authorities.'

'The on-shore office market remains under considerable pressure with rising vacancy rates a universal problem. The utilisation of residential accommodation for commercial purposes is also adding further strain to dedicated office spaces located outside the Free Zones,' it added.

The report pointed out that office lease rates in Sharjah have slipped 22 per cent over just a six month period. Average lease rates in second half of 2010 were in the range of Dh430-860/sqm/annum, but have now fallen to Dh300-700/sqm/annum.

An increasing inventory of new towers has started to affect tenant loyalty, with increased occupier movement away from ageing buildings that lack sufficient amenities and facilities, the report added.

CB Richard Ellis said despite widespread market negativity many investors were breathing a collective sigh of relief with a number of developments now handed over.

Increased construction activity is taking place on projects along the Emirates Road and for developments in the City Centre, Ajman including Ajman One, Ajman Pearl and the remaining components of the Garden City development, it stated. 

However, the slow pace of development work and extended handover dates are likely to have a telling and lasting impact on investor confidence, it added.

A quiet second half is anticipated for 2011, with rental rates likely to suffer as result. With significant new residential supply approaching completion a further increase in vacancy levels should be expected over the next 6 months.

The Northern Emirates office market will feel mounting stress for the remainder of the year as new office supply, existing vacant spaces and increased landlord competition further exacerbates lease rates, the report added.-TradeArabia News Service