The Dubai residential market witnessed a positive trend in the first quarter of 2012 with the villa market outperforming the apartment sector with a 5 per cent growth in rental rates, according to a new report.

The prime residential buildings in well established locations continued to see improved performance, but secondary locations were still suffering from rental and pricing declines, said leading property expert Jones Lang LaSalle in its report.

A total of 3,000 additional residential units were added to the market in the first quarter of 2012 thus taking the current residential stock to 341,000 units, the JLL stated in its ‘Dubai Real Estate Market Overview – Q1 2012’ report.

'Out of these, almost 90 per cent of the completions in 2011 were apartments. The major apartment projects handed over this quarter included the phase I of the Remraam Community in Dubailand and Emaar's Claren1 Tower in Burj Downtown,' remarked Alan Robertson, the CEO of JLL Mena.

As of the end of the first quarter, the largest proportion (44 per cent) of the residential stock added to the market since 2009 is located within the submarkets of International City, Dubai Marina, Discovery Gardens, JLT and Dubailand, he stated. 

Dubai's economy grew by around 3 per cent in real terms in 2011, driven by increases in growth in the trade, tourism, retail and hospitality sectors, the report said, citing Dubai Department of Economic Development data.

The emirate's real GDP growth is forecast to increase at between 4.5 per cent and 5 per cent in 2012, it added.

Robertson said there were indeed signs of investors' confidence returning as the Dubai investment market continued to witness strong interest for high quality, well located, income producing assets.

Two major transactions have already occurred in 2012, one of which was the sale of Building 6 in Gate Precinct at DIFC, he said.

The other was a debt to equity swap of office and residential space in Index Tower and Limestone House in DIFC between Emirates NBD and Union Properties for a value of Dh1.1 billion ($299 million), he added.

On the office sector, JLL said Dubai witnessed a limited supply entering the market in the first quarter of the year. As a consequence, asking rents for prime office space remained flat during the period.

'Occupier consolidation remained a key focus and in line with global trends, portfolio optimisation has been noticeable in Dubai during the first quarter,' remarked Robin Pugh, the head of agency, JLL Mena.

Larger companies continue to show interest in upgrading premises with more flexibility in their leases, it added.

On the retail sector, David Macadam, head of Retail, JLL Mena said due to the buoyant demand and limited retail supply entering the market in the first quarter, the overall average city-wide rent remained stable at Dh1,885 per sq m.

However the retail market is becoming increasingly two-tier and older, less popular malls are seeing weakened demand from consumers and retailers, he pointed out.

'Increasingly, mall owners are needing to consider new marketing techniques and product positioning,' he added.

On the hospitality scenario, JLL said the recovery of the hotel sector witnessed last year continues further, with the occupancy levels in Dubai hotels over the first quarter increasing to 86 per cent, which is similar to the levels experienced in 2007 / 2008.