Dubai's real estate market is set to see further price drops of 10 percent through to the end of 2012, a new report has predicted.
Kuwait-based Global Investment House also said that prices in neighbouring Abu Dhabi would fall further, by up to 20 percent in the same period.
It said Dubai residential selling prices have dropped almost 56 percent from their peak in 4Q08 while Abu Dhabi lost 45 percent over the same period.
"We estimate a current vacancy rate of 30 percent in Dubai and three percent in Abu Dhabi. The figure for the latter is subject to significant increase in the coming 2.5 years given the influx of 65,000 units in the residential market," Global said in the report.
Global added that although it saw some positive signals in Dubai in the first quarter of this year, including increasing sales volume and a slowdown in the pace of drop in rental and selling prices, it believed this was created by "an exceptional wave of tenant and capital movement of local and foreign investments from Egypt and Bahrain".
The Global study forecast that Abu Dhabi's recovery would take longer than Dubai due to the lag in the correction move downwards as the supply/demand balance.
The report added that rents in Dubai, which have fallen 59 percent since their peak in the fourth quarter of 2008, will bottom out next year.
But rents in the UAE capital, which are about 49 percent higher than Dubai, are expected to continue to decline, Global said.
"We estimate the current blended average rent of 1, 2 & 3 bedroom apartments in Dubai to stand at AED65,000 compared to AED97,000 in Abu Dhabi placing the capital at a 49% premium. We expect the gap to narrow down gradually over the next two years as Dubai rentals bottom out while those of Abu Dhabi continue declining on increasing vacancy rates," Global said.
"The key risk we see to this assumption is the pace of re-mobilisation of Abu Dhabi ex-tenants who moved to Dubai, mostly during 2010, to benefit from lower rents.
According to Global, the average drop in Dubai office selling prices was 58 percent from the Q4 2008 peak to Q1 this year.
"We expect pressures on selling prices to persist over the short to medium term as vacancy rates remain high at 40 percent and new supply of 19 million sq ft, equivalent to 33 percent of existing supply, enters the market by 2013," Global said.
It said it expected a further 10-12 percent decline in Dubai office prices from current levels.
In Abu Dhabi, vacancy rates hover at below 10 percent of the total existing 24 million sq ft, which is expected to increase significantly as a new 13 million sq ft enters the market between 2011 and 2013.
Office rents dropped 69 percent and 45 percent in Dubai and Abu Dhabi respectively from peaks, Global added.
"A reversal of the declining trend remains out of sight for the next five years, in our view, given the present high vacancy rates, supply increase and economic conditions," the report said regarding Dubai.
"We expect the decline in Abu Dhabi rents to speed up in the coming two years as the new grade A supply enters the market accelerating the vacancy rates of grades B and C and eventually pressuring grade A rents downwards," it added.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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