Real Estate Rents Expected to Drop More

Dubai Real Estate market overview report last month according to Jones Lasalle, Dubai’s present stock of office space stands at 43.6 million sq. ft. Currently, the vacancy level is estimated to be 33 per cent of that or about 14.4 million sq. ft. In addition, the 2010-2012 pipeline of newborn supply has been updated 33 per cent due to delays and project cancellations to 40 million sq. ft. from 60 million sq. ft. Roughly 54.4 million sq. ft. will most certainly remain vacant, that calculates to a vacancy rate of 65 per cent.

The average grade A rentals like in Downtown Burj Khalifa or Dubai International Financial Centre, are currently at Dh250 per sq. ft. and are estimated to decrease even further before stabilizing by 2011 at the earliest.

Approximately 54.4 million sq. ft. priced at a Dubai average of Dh150 would yield roughly Dh8.2 billion of annual revenue for landlords. So what do you do when you can’t rent all this space?

Consultancy firm CB Richard Ellis also reports and predicts that commercial and residential property rents in Dubai will continue to decline this assemblage due to oversupply and rising vacancy rates. Lease rates for commercial space in newer areas of Dubai, which have already dropped 50%, are expected to head lower ‘as competition for tenants continues to lead landlords towards greater incentive packages’, the report said. Residential units are also likely to see ‘a further diminutive contraction during the course of the next assemblage as a substantial volume of newborn residential accommodation reaches the final stages of construction’, it said.