By Andy Sambidge
UPDATE 1: CB Richard Ellis says nominal declines expected in Q4 but drop rate seen slowing.
The bottom for prices in Dubai real estate market's rental sector was "nearing" but further nominal declines will be seen in the final quarter of 2009, CB Richard Ellis said in a report published on Tuesday.
The company said that pressure on the emirate's residential market continued during Q3 but the rate of fall for rents slowed and are expected to slow further during the remainder of the year.
The study said the drop in residential lease rates averaged 39 percent year-on-year in the third quarter but some locations, such as Al Barsha, saw declines of up to 48 percent for a one-bed apartment.
CB Richard Ellis also said it had seen a shift during Q3 in payment terms with multiple cheques being paid instead of one, and even cases of tenants being offered get-out clauses.
The report said the average lease rate in Dubai during Q3 2008 was AED110-120,000 per year but that had slipped to just AED55-65,000 per year.
"Newly developed areas are faring comparatively badly in the downturn compared to more established communities," the report added.
On the outlook for 2010, Matthew Green, associate director - research at CB Richard Ellis, said: "We anticipate a continuation of rising vacancy ratios. However this will be project-specific and largely dependant on location, quality and amenities."
Regarding the commercial property sector in Dubai, the report said that demand continued to remain low during the third quarter, a situation aggravated by "considerable" new supply on top of an increasing availability of existing stock.
It added that current lease rates for offices were below that of 2006, which it said was a "reflection of the true extent of financial downturn".
CBRE said office lease rates in Dubai’s central business district had fallen about 55 percent year-on-year, while secondary and newly developed business districts saw an average fall of 67 percent.
" ...but some locations, such as Al Barsha, saw declines of up to 48 percent for a one-bed apartment." They are finally learning and full marks to CBRE for heeding the wailing from the sceptics. Keep the facts coming, and maybe the also-rans will start including one or two in their publicity-seeking press releases from now on.
I am no expert, but six months down the line, I am certain CB Richard Ellis will be disowning this finding for sure. A large number of apartments are lying vacant, evident from to let sign boards. And even more new buildings are about to enter the market in Nahda, Qusais, Muhaisina, Sports city, Silicon Oasis, Sharjah, Jumeira Village, etc. Further rents in Sharjah-Northern emirates have dropped quite sharply, I can not agree that the so called movement within the Emirates is going to happen in a big way. The population is not going to grow sharply until 2010 first half. Under the circumstances, it is difficult to imagine rents have bottomed out.
The supply and demand situation will determine when prices stop falling. For that to happen (and I mean in the long term, not just a temporary pause), the supply/demand balance would need to level off, with supply roughly meeting demand, or maybe just a little bit higher. At present there is a huge overhang of supply compared to demand. As more projects complete, there will be even more supply and even more construction employees leaving the country, reducing demand. The only way rents will stabilize is for a very large number of properties to be taken off the rental market and kept empty. Landlords can do this for a few months in the hope of a bounce, but few will be willing to hold an asset of that value for years, paying service charges and other fees for years on it without any income. Back when a handful of local landlords controlled the market, a cartel was possible. But ownership is too wide now. Eventually prices will get to a point that the cost of living is so low, business will once again move into Dubai in enough numbers to start to fill the housing mountain. But that will take years, and much lower rents. The bottom line is that at present, the business costs in Dubai do not make it an attractive place for enough companies to make them relocate. Costs probably need to halve again for it to get there. High property prices and rents are simply not sustainable in Dubai because they kill the long term business growth that is required to employ the people needed to fill the property.