Rental prices continue downward spiral in Dubai

The report predicted another 100,000 new units would be delivered in the next two years.

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Rental prices for residential and commercial units in Dubai have declined again this month due to an increasing supply of property, according to a recent real-estate report.

The Dubai lease guide for June, issued by Landmark Advisory real estate consultancy, says that lease rates have plummeted in the last two months, due to an oversupply of residential apartments and office space in the city.

According to the report, the biggest price drops were experienced by those renting low-quality buildings, but more significant, was the sharp decline in rent for properties in the more prestigious areas such as The Palm Jumeirah and Dubai Marina.

Worryingly, the report anticipated that another 100,000 new units would be delivered during the next two years, only increasing the surplus of available property further.

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"Declines are primarily attributed to increasing supply, a trend that will continue with 100,000 new units anticipated for delivery over the next two years," the report said.

Landmark Advisory’s director of research and advisory services Jesse Downs said: "Tenants are increasingly seeking more value for their rental dirham and are able to leverage alternative options to negotiate very attractive deals. This is pushing up bid-ask spreads and illustrates that landlords are conceding in negotiations with ever more discerning and value-seeking tenants.

“More significantly, this is a trend now observed in high quality units in prestigious locations, which is a segment that has experienced relatively minimal volatility in late 2009 and the first quarter of 2010 due to relocation trends."

Thus, whilst lower-limit prices for a one-bedroom unit on The Palm Jumeirah have dropped 6% since the publication of the last lease guide, one-bedroom apartments in Jumierah Lake Towers have declined by 10%.

Meanwhile, the report found that in lower-quality areas such as International City, lower-limit studio rents have fallen 12% and upper limits for both studio's and one-bedroom apartments have decreased by 22%.

The good news, the report says, is that rental demand in Dubai has been boosted by people relocating from surrounding Emirates, moving to the city to take advantage of the lower rents and lifestyle.

However, it continues to anticipate problems for Dubai landlords in the future as more and more tenants look at property in the UAE’s capital.

"The imminent delivery of Abu Dhabi's Marina Square will inevitably sway existing or potential commuters to rent an apartment in Abu Dhabi, however, which will clearly hurt rental demand in Dubai," Downs added.

"Rents in the capital are coming down and will continue to do so, especially in Q4 2010 and Q1 2011."