Areas in Dubai that saw the biggest drop in rents in Q2

Residential rents in Dubai continued to soften across the emirate in the second quarter of the year, in line with the softening market property conditions, a report by consultancy Core Savills has found.

Tenants are increasingly conscious of current market conditions and many have successfully renegotiated contracts while others have shifted homes, either upgrading to a better unit at a similar or lower rent or downsizing, depending on how their housing allowances/income is affected by the ongoing economic conditions, the report said.

However, it cautioned that the market is largely transacting at the lower end of the spectrum, bringing the area average down.

“This has let some market commentators to over-report the amplitude of the actual rental softening. Nonetheless, rental contractions of varying degrees are felt across the 18 of the 19 submarkets we track,” the report said.

Only one area among those tracked witnessed a rise in apartment rentals – Dubailand – where rates were up 2 per cent, possibly due to low entry level rents.

Rentals in Dubai tend to lag behind the sales market performance by some time, due to longer lease terms as rents are often paid a year in advance.

“This lag was clearly seen in play two years ago as landlords were resistant to adjust rents in line with overall market softening and sales price drop,” the report said.

“As the market dropped further and rents lost momentum by 15-20 per cent, this accumulated friction is now resulting in a seismic shift (which is not common for the relatively more liquid sales market) causing a delayed and amplified adjustment in rents,” it added.

This effect is further intensified in Dubai as lease terms generally end between March and September – when expats arrive in the country or shift, resulting in a larger
movement of tenants during the academic calendar break period.

“This has led landlords to become increasingly aware of the market and become susceptible to negotiations by compromising on yields to retain or attract tenants, sometimes even over adjusting,” said David Godchaux, CEO of Core Savills.

“Multiple cheques are becoming more common, as landlords incentivise tenants while aiming to keep headline rents steady.”

Locations such as Dubai Marina, JLT, The Greens and The Views still see strong activity, with units at competitive rents easily absorbed within two to three weeks.

“Furthermore, a growing segment of tenants are shifting from rental to ownership as better payment terms from both banks and developers come into play, while rental yields remain relatively high across Dubai even after seen some level of compression,” explained Godchaux.

“This makes the cost of renting vs owning still comparatively more expensive than other global cities.”

Godchaux added: “We noticed many landlords that were keeping units vacant for 12-18 months as they were not ready to adjust rents when the overall market started to soften.

“A lot of them are now reacting by decreasing the rents, to attract tenants back and finally initiate rental income, sometimes more than necessary.”

AREAS THAT RECORDED THE BIGGEST DROP IN RENTS IN Q2

APARTMENTS

1. The Views

Rental drop (vs Q2 2016): 6%

2. The Greens

Rental drop (vs Q2 2016): 5%

3. Palm Jumeirah

Rental drop (vs Q2 2016): 5%

4. Dubai Sports City

Rental drop (vs Q2 2016): 4%

5. Discovery Gardens

Rental drop (vs Q2 2016): 4%

6. Business Bay

Rental drop (vs Q2 2016): 3%

7. Downtown Dubai

Rental drop (vs Q2 2016): 3%

8. Jumeirah Village

Rental drop (vs Q2 2016): 2%

9. JLT (Jumeirah Lake Towers)

Rental drop (vs Q2 2016): 2%

10. Dubai Marina

Rental drop (vs Q2 2016): 2%

11. DIFC

Rental drop (vs Q2 2016): 2%

VILLAS

1. Palm Jumeirah

Rental drop (vs Q2 2016): 8%

2. Arabian Ranches

Rental drop (vs Q2 2016): 7%

3. The Springs and Meadows

Rental drop (vs Q2 2016): 7%

4. The Lakes

Rental drop (vs Q2 2016): 5%

5. Emirates Hills

Rental drop (vs Q2 2016): 3%

6. Dubailand

Rental drop (vs Q2 2016): 3%

7. Jumeirah Village

Rental drop (vs Q2 2016): 1%