Landlords in newly-handed over buildings in Dubai are slashing rents by up to 30% below market rates in order to boost occupancy as the emirate's supply pipeline continues to weigh heavily on the market, according to a new report by real estate consultancy Landmark Advisory.
The firm's November 2010 lease guide for Dubai found that property rents had fallen significantly since its most recent report issued in June.
"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,' said Jesse Downs, Director of Research & Advisory, Landmark Advisory. 'Some developers and landlords are finally realising the implications of this supply pipeline and are slashing rents by up to 20%-30% below market rates in order to achieve higher occupancy in newly handed-over buildings.'
These new pricing strategies have particularly significant implications for the areas with the most substantial supply pipelines. 'These properties are setting the new market rates,' Downs said.
Looking ahead, the report predicts that lease rates in Dubai will continue to fall, with the biggest drops occurring in areas that have maintenance and infrastructure problems. One example cited in the report was International City, which has seen rents fall 38% since June 2010 (from Dhs22,000 to Dhs16,000 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 said.
Dubai Marina rents fall 27%
Meanwhile, areas such as Dubai Marina, JLT and The Views have seen big declines primarily due to the handover of new buildings. Rents on quality two bedroom apartments in Dubai Marina have declined by 27% since June, whereas a comparable unit in Downtown fell by 6% in the same period, the report noted.
To measure how pricing impacts occupancy, Landmark tracked three new Dubai Marina buildings in their first three months after handover. The buildings with the most competitive pricing achieved 90% occupancy within three months of handover, while those with high rates and a rigid pricing strategy had just 40% of units occupied in the same time frame.
The report also examined supply and demand dynamics across Dubai and Abu Dhabi, and predicted that rents in Dubai will decline in spite of rising demand from commuter in the capital. 'We estimate that average vacancy rates in Dubai are currently 15%-18% but will increase to 19%-24% by 2012. Even considering the Abu Dhabi commuter demand, it is clear that average rents in Dubai will continue on a downward trajectory,' Downs said.
Dubai villa rents fall less sharply
Similarly, villas in areas with maintenance or infrastructural problems witnessed greater price falls than those areas which are comparatively unaffected, the report noted. Jumeirah Islands witnessed an average drop in lower limits of 16% across all unit types, compared to a drop in the Meadows of only 9%.
'Recently handed-over villa communities in Dubai have suffered severe price drops as many landlords have struggled to attract tenants to areas lacking basic amenities and infrastructure or within/near construction zones,' the report added.