According to the latest report by leading Dubai-based property management company Asteco, an increased supply of high quality, affordable accommodation, particularly in the apartment sector provided the catalyst for considerable tenant movement across Dubai in Q4 2010. In addition apartment rental rates declined by just 3% during the same period, the lowest quarter-on-quarter fall during the year, an indication that the market is showing signs of stabilisation.
“The real estate market is characterised by a large supply of high quality stock at affordable rates, leading to a flight-to-quality trend currently seen across Dubai. Apartment rates have dropped 17% on average during 2010 and this has brought a number of upscale developments within the reach of mid-income budgets,” commented Elaine Jones, CEO, Asteco Property Management.
Indeed although apartment rental rates fell last year, it was still less than the 24% rents fell in 2009, further indication that market prices are stabilising. According to the report, International City has seen the largest drop due to tenants migrating to better quality developments in more desirable locations. Overall studios experienced the lowest decline and one-bedroom apartments suffered the largest fall.
“Rents are expected to continue their downward trend in 2011, albeit at a lower rate as more supply enters the market, providing prospective tenants with even greater choice,” added Jones.
Villa rental rates fared better than apartments in Q4 2010, falling by just 1% over the three month period, primarily due to the limited availability in central areas. Quality communities such as Palm Jumeirah and Jumeirah Islands performed better than more mature developments such as The Springs and The Meadows.
Unsurprisingly, office rental rates fell by 8% in Q4 2010. DIFC set the tone by reducing their rates per square foot from AED370 in the first quarter of 2010 to AED230 in Q4 (a fall of 22%) in an attempt to compete more favourably with quality developments on Sheikh Zayed Road such as Rolex Tower and Sama Tower.
Continued delivery of new stock in JLT and Tecom sent rents down by 20% and 12% respectively. Although transaction activity has picked up due to the improving economy, continued oversupply will no doubt put further downward pressure on rental rates. In contrast office sales prices only declined by 6% in Q4 and just 8% during the whole of 2010, predominantly due to weak transaction activity. Prices will remain subdued due to a lack of investor confidence.
Apartment sales prices slipped by only 2% on average suggesting a slowdown in the rate of decline. Continuous delivery has seen average sales prices in Dubai drop by AED100 to AED850 over the past year, while prices in International City and Discovery Gardens have fallen to AED350 and AED450 per square foot respectively. Sales prices on Palm Jumeirah were flat in Q4 but still command one of the highest prices at around AED1,500 per square foot.
Villa sales prices in Q4 meanwhile were relatively stable with only the Springs experiencing a 4% fall. Overall market prices fell just 8% in 2010, with downward pressure more predominant in developments with a large inventory, such as The Springs and the Arabian Ranches. Market demand continues for smaller units, driven by affordability