Supply to squeeze Dubai rents

Dubai rents are set to fall further as the city braces to absorb another 9,000 homes by the end of the year.

Visitors study a map at the Dubai Properties Group stand on the first day of Cityscape.
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Dubai rents are set to fall further as the city braces to absorb another 9,000 homes by the end of the year.

About 35,000 homes are expected to be finished across the emirate this year. Despite the dramatic downturn in the property industry, that still represents more than the total number of new homes delivered in the whole of Ireland last year.

Another 30,000 units will be added to the surplus next year, according to data from the property consultancy Jones Lang LaSalle.

"There are some incredible bargains around and exceptional deals that are way under the market," said Mike Atwell, the head of the MENA region for Cushman & Wakefield, another consultancy.

"Rents will continue to decline, particularly in locations that are not so preferred."

While that may make the city a cheaper place to live and work, the prospect of falling rents dampened the mood at the annual Cityscape conference in Dubai yesterday, where even a man playing a gold-plated piano at one of the stands failed to lift the spirits.

It was one of the few reminders of the extravagant spending the region's biggest property show once represented. In contrast, developers yesterday rolled out models from two years ago and executives shied from bold pronouncements.

Rents in the city have already fallen by an average of 9 per cent from a year ago, according to Jones Lang LaSalle. But some locations, such as Dubai Marina and Palm Jumeirah, are emerging as "pockets of resistance" where prices have largely stabilised, brokers say.

Areas with established communities and "lifestyles" would be more likely to hold their positions, while those in the outskirts of Dubai or older buildings would experience more severe corrections.

"You put more supply into the market and there will be a softening of rental levels," said Steven Morgan, the head for the UAE of the consultancy Cluttons.

"But you can't talk about the entire market in one fell swoop."

Mr Morgan said declining rental values would lead to lower yields, one of the main reasons to invest in property. But it would also help to make the city a more affordable place in which to live.

"Decreasing rental levels are a huge concern for the industry but Dubai is looking pretty healthy when it comes to benefiting from a global recovery," he said. "Lower rents could be bad news for investors, but good news for the city."

Sam Chandan, the global chief economist at Real Capital Analytics, said Dubai's falling cost of doing business would play a major role in recovery of the broader economy.

"In Dubai in particular, there is an imbalance with the relatively low market demand and the very large and growing number of real estate projects," Mr Chandan said.

"This will prevent the whole economy from emerging quickly."

On the flip side, companies that were dissuaded from moving to Dubai in the boom years because of the high cost of living and doing business have another chance.

"Dubai remains a nexus of the region," Mr Chandan said. "With costs low, businesses will want to come here and set up."

* Reporting from Bradley Hope and Angela Giuffrida