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MarketView from Dubai: Q4 2009

03 Feb 2010

Matthew GreenWith Mat Green, Associate Director – Research & Consultancy, CB Richard Ellis Middle East

Overview

  • The real estate market remained sluggish during the final quarter of 2009 with few signs to suggest any imminent upturn in fortunes.
  • Vacancy rates in the CBD are still prevailing in single digits, but some secondary locations are now over 30%.
  • Infrastructure and transportation projects remain on track despite the slowdown in real estate projects.

Office Sector

  • Lease rates continued to drop during 2009 as demand remained weak and supply increased substantially
  • Rental rates in prime business areas, excluding DIFC, ranged between AED1,950 to 2,400/sqm/annum during the quarter with little change from Q3, 2009.
  • Sliding lease and occupancy rates continue to incentivise landlords to offer rent free periods, inclusion of service charges, and multiple cheques. 
  • New office space continued to emerge in existing as well as new office districts.  During the course of 2009 a total of 0.58 million sqm of new office accommodation entered the market in both freehold and non-freehold locations.
  • The majority of office space in freehold locations was pre-sold on strata title with only a limited number of towers actually being held by a single owner - approximately 49% of the total new stock which entered during 2009 was sold on a strata title basis.

Residential Market

  • A high volume of new supply coupled with lower demand continues to affect lease rates across virtually all major residential districts of Dubai.
  • However, the fall in Q4 was minimal compared to the three previous quarters in 2009.
  • A comparative analysis of eight residential districts reveals that lease rates have dropped by 41% and 40% in the freehold and non-freehold locations respectively on a year-on-year basis. 
  • Declining lease rates during the year saw a steady migration of residents to newer locations closer to their place of work and there was also a marked shift towards larger units. 
  • Average lease rates for a three bedroom apartment in Bur Dubai during Q4 were between AED90,000 - 110,000/unit/annum - similar to prevailing rates in Q4, 2008 for a one bedroom apartment.
  • The considerable drop in lease rates, together with landlord incentives, has resulted in an increasing number of tenants terminating contracts on completion of leases to seek better alternatives.

Outlook 

  • Newer areas which are already experiencing high vacancy rates are expected to see rents dip further as competition for tenants continues to lead landlords towards greater incentive packages.
  • Handover of significant strata office space is expected to create issues for landlords and occupiers. With most buildings sold to multiple investors, leasing of contiguous units could be problematic.
  • Lease rates for residential units are likely to see a further contraction during the course of the year as a substantial volume of new accommodation reaches the final stages of construction.
  • It is expected that new supply will have the most affect on villa units, with a high number of new developments helping to significantly increase supply in this sector. 

CBRE Dbx MarketView - Q4 2009
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Source: CB Richard Ellis (CBRE)

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