Dubai: Dubai’s residents are not getting much of a cheer from their rent renewals. Rents have declined — appreciably — only in select and upscale neighbourhoods while continuing to be at their “high” levels elsewhere in the city. And even in those mid-market residential locations where rents had dripped in the last three quarters, they seem to have stabilised now.
“Despite layoffs [in many key sectors], rentals have held steady in most communities, indicating underlying strength,” states a new report from Reidin-GCP.
From their peaks, residential rents across Dubai are down only by 6 per cent compared with the 10 per cent and over declines property values in its freehold areas have experienced since mid-2014. But locations such as the Downtown, Jumeirah and Al Wasl neighbourhoods and Dubai Marina are down by a wider margin on asking rents than at the likes of Sports City, Discovery Gardens or even the traditional sub-markets of Karama, Bur Dubai, Al Ghusais and Al Rashidiya.
What this suggests is that the much anticipated rental softening to levels last seen in 2011-12 is not likely to happen for those Dubai residents who rent their homes. The rental premium is still very much a burden when it comes to balancing their monthly budgets.
Clearly, there is a major disconnect between what is happening on the property sales side in Dubai and in its rental space. “At the top end, there has been a correction across the board, both in the villa/town house only locations and in the super-premium apartment towers in Downtown and Dubai Marina,” said Sameer Lakhani, Managing Director of Global Capital Partners. “In these communities, we have witnessed rental corrections of 10-12 per cent.
These are the locations where the job losses in the local economy have left deep imprints. Senior executives who resided in these locations could have been forced to head back to their home countries or opted for “cheaper” digs after their employers cut back on management perks.
Also, new supply at the premium end is leaving little room for existing landlords to keep demanding increases on their rents. Tenants are more than likely to ditch their old landlord and opt for a new one if they feel their demands will be met. And landlords holding an inventory of premium rental homes are willing to bend on their demands. (Leasing agents have confirmed that new homes on Jumeirah and off Al Wasl Road are staying on the market for far longer than is the norm. But, so far, the landlords seem intent to wait and get the rents they demand rather than cut the asking rate.)
But even substantially higher supply is not helping matters in the mid-market rental space. “While there remain concerns about accelerating job losses, data from Dubai Statistics Centre continue to show that new job and company creation remains relatively healthy,” said a developer source. “There is still a paucity of options in the mid-income space and, by extension, on rents.
“In contrast, Dubai remains well-supplied at the top-end ... therefore, it’s difficult to see rents rising at this end of the spectrum any time soon.”
Factbox: Different dynamics at play in the mid-market
Apartment values in Dubai Sports City seem to have made the quickest recovery — and this despite new supply continuing to be added at the location. According to Reidin-GCP data, values there are higher by 3 per cent since mid-2014, while International City has gained 2 per cent.
Across Dubai, the gains are in the range of 1 per cent since mid-2014, while citywide villa values have inched higher by 1.5 per cent. Among the premium freehold locations in Dubai, the villas on the Palm are now up by 3 per cent plus, while apartments on the island have gained around 2-2.5 per cent.
“Various communities have seen prices edge upwards from the lows,” states the Reidin-GCP report. “This increase signals a turnaround of the market as prices gradually recover their losses of the last 18 months.”