Confidence is returning to specific locations and developments in the Dubai real estate market with the re-emergence of key lenders although prices are still expected to drop further, the latest analysis suggests.
Projects such as The Old Town, Dubai Marina, Palm Jumeirah, The Meadows and The Greens are proving to be more resilient in both the sales and leasing market, according to Cluttons, the real estate specialists who have had a dedicated presence in the Middle East since 1976.
The reports points out that buyers now have the financial option to upgrade to better quality units in more desirable locations. These improvements on efficiency and quality can only enhance the reputation of the real estate market in Dubai.
The report also says that effective management is the key to confidence in the market and landlords with well located residential units are encouraged to acquire as much control as possible over service charges and use a reputable property management company.
Also the re-emergence of key lenders including Tamweel, one of Dubai’s largest Islamic mortgage lenders, onto the marketplace offering attractive rates to credit worthy clients wishing to purchase quality stock is helping move the market forward.
In the residential sector average rental rates have fallen by 3.3% for apartments and 3.2% for villas while sale prices have dropped 2.4% for apartments and 5.1% for villas. The report says that as supply continues to increase, drops in values will be unavoidable.
In the commercial rents have fallen on average 9% over the past quarter. The report says the ongoing construction and completion of commercial projects within Jumeirah Lake Towers (JLT), Tecom C, Business Bay and Silicon Oasis throughout 2010 has placed downward pressure on rents within most areas of the city.
Established office districts, such as DIFC, Deira, Bur Dubai and Sheikh Zayed Road have been able to maintain healthier levels.
In contrast to previous quarters, Cluttons is starting to see a slow migration of large multinational firms such as Swiss pharmaceutical giant, Merck Serono, into the Emirate. ‘This is an encouraging sign, as Dubai’s affordability starts to make an impact. The key to medium term success is focusing on quality property maintenance and fostering the tenant-client relationship through a flexible approach to leasing,’ says the report.
It also point out that the fall in office rents will continue unabated as long as new supply continues to be introduced. Landlords who have faired the best throughout 2010 have been those who have been willing to be flexible when negotiating new leases and lease renewals. As well as offering lower rents, the negotiation of longer lease lengths, break options and flexible lease terms are now the mechanisms that must be considered when securing a tenant.
In the industrial and logistics market even though rents are not increasing, confidence is returning for quality logistics facilities that will support sustained, long term demand in areas such as Jebel Ali (JAFZA) and Dubai World Central (DWC), the report also says.
‘A two tier rental market has emerged, with a clear divide between quality buildings that international companies will consider, and older buildings out of prime areas that are becoming increasingly difficult to trade,’ it says.
It also says that the investment market has become more aggressive, with funds that are focusing on the UAE logistics sector now paying below 10% initial yield for good buildings with long leases.
Confidence is also returning to the market, underlined by the Dubai government’s endorsement of DWC when it allowed the first freight service through Al Maktoum airport.