Over-supply will further push down Dubai rents -report

ABU DHABI, Jan 23, 2011 (Reuters) : Dubai's real estate market woes are far from over as over-supply in office, residential and retail sectors will continue to push rentals down, a report from property consultancy Jones Lang LaSalle said.

Vacancy rates in Dubai's office market have increased to 41 percent ending last year and is expected to rise to 45 percent over the coming year as new supply comes.

Average prime rents dropped from 190 dirhams a square foot per annum to 150 dirhams, down 21 percent in the fourth-quarter, and a 32 percent decline year-on-year.

The steep drop in Q4 is partly attributed to the move by Dubai's financial center, DIFC, that it will drop rents for managed properties, the report from the real estate consultancy said.

A property boom in Dubai collapsed at the end of 2008 when it was hit by the global financial crisis and the Gulf state's debt crisis.

In the residential segment, average apartment rents fell 8 percent year-on-year, declining 4 percent quarter on quarter. On the same basis, average villa rents saw a fall of 11 percent and 1 percent respectively.

"Although there are recent pockets of stabilization for Dubai's higher end residential product, the residential market will continue to experience a situation of oversupply and prices are not expected to recover before 2012," the report said.

Dubai house prices, already nearly 60 percent off their peak, are set to drop another 10 percent over the next two years as new units are released onto a market awash with supply, a Reuters poll showed.

Retail malls in Dubai continue to experience vacancies of 15 to 30 percent as retailers have taken advantage of more competition among centres to close poor-performing stores.

The hotel market is the closest to the bottom of the cycle as visitor levels increased in 2010 and occupancy rates averaging 70 percent, comparing favourably with major cities in the region, the report said.