Drop in rents to continue

UAE_According to recent reports, rents in the northern emirates are continuing to fall while Abu Dhabi's rental market seems to be stabilising.

A CB Richard Ellis report found that rental rates in Sharjah, Ajman and Ras Al Khaimah have decreased by 20 per cent on average from last year, with some areas witnessing drops of up to 35 per cent. The report predicted a continuing decline this year with Dubai's cheaper rents attracting tenants from other emirates, as more units come on to the markets.

Mohammad Fahim, research analyst at CB Richard Ellis (Middle East), says, “The northern emirates enjoyed a boom period in recent years as cost-conscious occupiers sought alternative accommodation solutions. The ‘ripple effect' emanating from Dubai was sufficient to fuel the expansion of new periphery markets, a consequence of tight supply and exceptional levels of demand. However, the real estate market in the northern emirates, primarily Sharjah, Ajman and Umm Al Quwain, is now experiencing a universal drop in both occupancy and lease rates as a market reversal quickly erodes the gains of recent years.''

The exodus of people from the northern emirates to Dubai has had a telling impact on the rental rates in these areas, but Abu Dhabi continues to weather the storm. Unlike Dubai and Sharjah, where rents went down drastically in the past few months, rental rates in the capital have dropped marginally (10 per cent in Q2 2009), according to Landmark Advisory. A survey by property management firm Asteco states that rents in the central areas of Abu Dhabi remained unchanged in July from the rates in June.

“Much of the drop in rentals in Dubai and Sharjah has been due to a decline in the expatriate workforce along with new stock entry,'' says Mohammad. “However, the scenario in Abu Dhabi is different. The emirate is still facing a housing shortage, especially in the affordable sector. Until new housing units enter the market, the rental rates are likely to remain strong despite the significant drop in rates in neighbouring Dubai.''

However, he says the supply situation in Abu Dhabi is not going to change any time soon. “The supply picture in the capital is expected to remain extremely tight in the short-term. New units are scheduled for handover during the year but they are predominantly targeted towards the high-end sector. As such we may see some price movement in this sector but generally rates will be firm until sufficient supply across all sectors is realised.''