‘Rent-free periods’ likely as Dubai supply increases, says CBRE

New supply to be delivered this year could also push rents down, property consultancy finds

PHOTO: Dubai will see a significant amount of new units delivered in 2015, CBRE said. Credit: Shutterstock

Tenants in Dubai can expect some relief in 2015, with declining rents in some areas and landlord incentives like “rent-free periods” likely as more supply enters the market, according to CBRE.

Dubai will see a significant amount of new units delivered in 2015, adding pressure to the residential market and possibly prompting landlords to find new ways of enticing tenants, the property consultancy said in a report.

“The leasing market which has remained stable over the past three quarters is expected to witness increased landlord incentives in the form of rent-free period and other allowances, whilst rental declines are also likely in some areas,” said Mat Green, head of research and consultancy at CBRE Middle East.

Meanwhile, the office market is expected to see strong demand in major freezone locations but global economic uncertainty could lead to prolonged negotiation and deal periods, he added.

Over the last year, Dubai’s housing and office markets have remained broadly stable despite an increase in supply entering the market, CBRE found.

Residential rental rates have increased by only about 3% from 2014, a positive indicator after a period of significant rental price growth, Green said.

This stability in rental growth is due to a large amount of supply entering the residential market last year, with 16,000 apartments and villas delivered in the second half of 2014.

Residential sales transactions, on the other hand, have dropped by 20% year-on-year while volumes declined by about 4%. However, there has been a rise in transactions and volumes from the last quarter, CBRE said in its Q1 2015 Dubai MarketView report.

Investors continued to flock to prime locations like the Palm Jumeirah, Dubai Marina, Downtown Dubai, and Jumeirah Beach Residences, which made up about half of the total values transacted in the first quarter of 2015, Green noted.

In the apartment segment, emergency of new supply and traffic issues have led to declining rents in a few districts like Al Nahda, Al Barsha, International Media Production Zone and Motor City. Other developments like Jumeirah Lakes Towers, Discovery Gardens and Karama maintained healthy rates, he added. Villa and townhouse rents remained largely unchanged during the quarter, CBRE found.

In the commercial market, prime office rental rates have risen by 3% year-on-year, while secondary rents saw 7% growth from the same period in 2014. As of Q1 this year, total office stock in Dubai measured 8.1 million sqm, with the addition of approximately 40,000 sqm from the Dubai Design District during the quarter.

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