Dubai’s residential market witnessed a very minor contraction during the second quarter, with both sales and rental rates seeing modest declines, according to a report.

The sales prices fell by close to one per cent during Q2, with the emirate's residential sector slowly edging towards the bottom of the market, with just a two per cent drop recorded year-on-year, stated global real estate consultancy firm CBRE in its Dubai MarketView.

This is driving the progression of a tenant-led market, with landlords becoming more generous in their negotiations with prospective new tenants, said the expert.

Future supply levels continue to grow at a rapid rate, which is a longer-term concern for the market, with a significant pipeline of new properties set to be completed in the build- up to 2020, with annual deliveries rising already well above the five-year average, stated the CBRE in its review.

However, tenants on existing leases are generally not finding the same level of flexibility from landlords, although rental increases are becoming less prevalent, it added.

Mat Green, the head of research and consulting (UAE) at CBRE Middle East, said: "The sales market has witnessed an improvement in transaction numbers during 2017, with off-plan properties remaining favourable amongst investors, underlining the speculative nature of the local market."

On Dubai's office market, CBRE said it remains fragmented, with stable conditions for many prime free-zone and non-free-zone properties. However, it continued to experience declines in the secondary market.

The report states that average prime rentals have now remained unchanged for five straight quarters, at Dh1,920 sq m annum.

This stability underlines the relative scarcity of good quality accommodation in key office areas, which is helping to maintain rates at the current levels despite weaknesses in certain parts of the economy, he added.

Secondary office rentals have continued to fall, declining by around four per cent during the quarter to Dh1,000/sq m/annum.

With additional new supply expected to be completed in locations such as Business Bay, Dubai Silicon Oasis and JLT in the short to medium term, CBRE expects a further softening of rentals.

According to Green, latent demand for Grade-A office spaces remains quite resilience, particularity for those properties that are able to offer tenants a dual licensing option for their accommodation.

"However, demand for typical onshore buildings in the traditional business districts continues to weaken, resulting in declining rental trends and greater flexibility in leasing terms," he added.-TradeArabia News Service