New Residential Supply Yet To Correct Rents in Dubai

Feb 24, 2016

Any Softening That Is Taking Place Confined to Individual Neighbourhoods


Dubai: Contrary to the expected norms of demand and supply, new residential supply in Dubai doesn’t seem to have had much of an impact — so far — in bringing rentals down drastically in the city’s key neighbourhoods. Changes that may have taken place remain confined to individual locations rather than take on a citywide character.

Indeed, landlords with new properties to fill have only had to make slight changes in their expectations to fill up their premises.

“The choice for landlords is straightforward — should they be demanding a higher asking rate and see their property remain vacant for weeks and thus cost them tens of thousands of dirhams,” said John Stevens, Managing Director at Asteco, the real estate services firm. “Or are they better off making a rental offer that has a more realistic chance of bagging a tenant now.

“More landlords are veering towards the second choice. This means, in most cases, new properties are not having to wait around trying to find a tenant. It’s only when a sizeable number of properties remain vacant for a period of time that a rental market sees a change. It’s not happening in Dubai now.”

New supply

The trend of the new trumping the old is just as easily noticeable in emerging residential clusters such as Jumeirah Village as well as in Dubai Marina, International City — the two most popular residential search preferences at either end of the spectrum — and Discovery Gardens. “The rental corrections — mostly partial changes — are taking place at communities where there is new supply,” said Stevens. “For instance, there could be fresh stock in Jumeirah Village and landlords there might be willing to come in at a lower rate to the rest of the market.

“But this impact is only confined to that immediate neighbourhood rather exported to communities beyond. It makes any rental corrections an extremely localised affair.”

According to Asteco data, the dynamics of new versus old supply plays out in many ways. In the upmarket neighbourhood of Jumeirah, older properties are feeling a downward pull from all of the new homes that got delivered there in recent months. “Jumeirah has witnessed a reduction in asking rents, both from competition emerging from new stock and less demand because of cuts in general housing allowances (for senior professionals who make up a good portion of the resident base there) by companies on account of the slowing economy,” said Stevens.

Lease terms

But there have been changes, in that Dubai’s residential leasing market is no longer seeing the kind of markups in annual renewals landlords used to demand — and get — in 2013-14.

“We are seeing that landlords commanding high rents but for properties of average quality are being threatened by the new supply,” said Stevens.

“But where the lease terms are viewed as being right, there is substantial demand for leased properties. Over a three-month period, we managed to lease out the bulk of a 130-unit building in TECOM, whereas a managed portfolio in Discovery Gardens of almost 2,500 units has only 60 vacant units.

we managed to lease out the bulk of a 2,500 apartment portfolio in Discovery Gardens.

“The level of activity being recorded in Dubai’s rental market is far removed from the sales side of things.”

A preference for the new at the expense of the old

In Sharjah too, residents are showing a liking for the new. With each new high-rise being readied for occupancy, and with more features than the older ones, tenants are making the switch. “The sales and rental transaction activity in Sharjah is still on the high side,” said John Stevens of Asteco. “But this is in keeping with the traditional six-month gap between what happens in Dubai and its (residual) impact on Sharjah.”

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