Supply distortion leads to temporary rent stabilization in some areas of Dubai

The monthly guide, which is the 5th to be released this year, illustrates early signs of rents stabilizing in some areas, while in other parts of Dubai, rents are continuing to increase.

Commenting on signs of rents increasing, Charles Neil, CEO of Landmark Advisory, said:

"The increasing rents can be attributed to a lack of supply; many landlords have removed inventory from the market to avoid renting out at current market rates while others may be out of town during the summer period and consequently unavailable. We predict that the month of Ramadan will also affect the leasing supply as many landlords are waiting until Q409 to reassess the market."

The report highlighted that demand for property was particularly strong during June and July due to a significant amount of rental contracts ending around this timeframe. However, the marginal rent increase triggered by this is recognised as unsustainable by Landmark Advisory: "The large amount of rents ending during the same period ultimately creates a temporary supply distortion following a period of particularly strong demand," explained Neil.

Rents in many areas of Dubai have decreased significantly over the past 5 months, but despite this, there are exceptions to this trend with some unit types in preferred developments performing well. As the graph illustrates, these unit types have either returned to March 2009 rents, or in some cases, increased. Apartments of good quality in Dubai Marina have increased by 11% for 1-bedroom units and by 6% for 2-bedroom units while 3- and 4-bedroom villas in Arabian Ranches and 3-bedroom villas on Palm Jumeirah have returned to March 2009 rents or increased marginally.

Commenting on the statistics Neil said, "Although the graph demonstrates rising rents for 1- and 2-bedroom apartments in Dubai Marina, the rents for studios and larger 3- and 4-bedrooms apartments have declined. These rental trends are, of course, highly correlated with emerging demand patterns. Preferred areas and unit types will be the first to recover in terms of rents. Tracking these specific units over the past 5 months indicates that rents in these areas are sustainable."

"These findings are in line with our Q309 Dubai and Abu Dhabi research report which showed that 1- and 2-bedroom apartments and 3- and 4-bedroom villas were the most sought after unit types in the leasing market," continued Neil. The price map also shows a continued upgrading trend with key factors for relocation demand being location, quality and size.

The research shows that relocation demand is continuing to drive the leasing market with demand still coming from Abu Dhabi and Sharjah as well as from within Dubai. A continued upgrading trend is also evident with location, quality and size being the key factors for relocation demand.

Landmark Advisory predict that most residential areas in Dubai are subject to further fluctuation, especially as new supply comes onto the market in the next 12-24 months. "If rents do come down further for these areas then we expect additional relocation demand as long as landlords adapt pricing strategies. Of course, this relocation demand will help to mitigate any further rental declines," explained Neil.

In addition to its new Dubai price maps, available today for online download, Landmark Advisory will be releasing its Abu Dhabi price map in the next few days which is also available at Landmark Advisory website.