Rent declines likely on new tenancies in Dubai

Existing tenants can negotiate cheaper rents if they prove similar properties are being let out for much less

This summer in Dubai has been one of the busiest yet for expatriates to relocate, say industry watchers. While the summer months of May and June traditionally see several families waiting for the school term to come to a close before they relocate, this year has seen a spike in international moving by expatriates in the UAE.

Bana Shomali, CEO and founder of Movesouq.com, a comparison portal for moving companies, said: "There has been a substantial increase in the number of international moving requests across Dubai and Abu Dhabi in the last two months. If we compare the number of requests on our portal, they are 70 per cent up from what we received in January."
While there is no clear indicator on what's driving these relocations, there is market talk that it could be because of economic reasons.
People are primarily moving back to their home countries. "The top 10 destinations from the UAE in descending order are: USA, UK, India, Canada, Saudi Arabia, Australia, Lebanon, Pakistan, Oman and Qatar," informed Shomali.
Those with families that lose jobs will either see out their tenancy contract or school year and move home, or find a smaller property and send the family home while they try to rebuild.
Partial relocation
"In general, if a family's main bread winner loses job and does find one quickly, then relocation or partial relocation seems to be happening. Rather than downsizing, it often makes more sense to send the family home while the main earner in the family moves to a smaller property and tries to find another job," explained Toby Young, managing director of Propertyrights.ae.
This would consequently result in more vacant units hitting the market until September, which could weigh on landlords' asking rents. However, rents are more likely to fall on new tenancies rather than for incumbent tenants.
"Existing tenants have very little bargaining power. They can try and negotiate their rent lower, but ultimately they need to be able to prove that similar properties are renting for much less than they are currently paying. For a tenant to decide to move, they would need to see a drop of over 10 per cent for it to be worthwhile due to the costs involved as well as agents' fees, deposits and other associated costs," advised Young.
While several people are renegotiating their current contracts, a large amount of tenants are also making the move from apartments to villas in new, outer communities.
According to Movesouq.com, based on 2015 trends, Dubai Marina and Jumeirah Beach Residence, Jumeirah Lakes Towers, Downtown Dubai and DIFC, Business Bay and Jebel Ali Village are the five established areas in Dubai which see high move-in rates and high-move out rates. Jumeirah Village, Dubailand, Silicon Oasis and Academic City, and Jumeirah Park and Jumeirah Islands are also experiencing an influx of people.
Where rents are dropping
Core, the UAE associate of Savills, says rents are dropping in areas where there is more supply, for example in the Springs, where there is a lot of availability, rents have dropped by up to 10 per cent. However, in Arabian Ranches, Downtown Dubai and Dubai Marina, where there is less availability, prices have remained stable.
"I see more room for rents softening in outer and older communities as more stock is released into the market by the end of the year. The rental market typically takes more time to adjust and then stabilise than the sales market, especially in Dubai, due to the rent regulation and lack of rental term flexibility [for example, almost no short term rentals]," said David Godchaux, CEO of Core.
Although landlords are not obliged to reduce rents, long periods of vacancy on their properties could force them to drop prices. "A landlord's property is an investment, and if the property is not rented out, then they don't get a return. In theory, the longer the property remains empty, the lower the rent the landlord will be willing to accept to ensure they are receiving a return," said Young.
Godchaux added: "We are advising landlords that prices have decreased and, as a result, when renegotiating renewals, this should be taken into account. However, rent decreases are typically seen in new tenancies rather than renewed contracts, unless there is a financial reason such as job loss ."
Research by Movesouq.com reveals that households in Dubai move once every two years on average, for a variety of reasons such as cost of living, issues with the landlord, wanting to move closer to work, etc.
Where new supply is coming up in Dubai
Core, the UAE associate of Savills, says that over 30,000 units should theoretically be delivered in Dubai by the end of the year. However, developers are likely to delay handovers in line with market demand.
New supply is expected to come up in Jumeirah (City Walk), Business Bay, Downtown, Jumeirah Village Circle, Dubailand and Mohammed Bin Rashid City. "City Walk is proving to be a popular new development, as it's one of the first freehold areas to be offered in Jumeirah. The Dubai Canal may be in its infancy but we are also seeing a buzz around this area, which will continue as more projects are announced," says David Godchaux, CEO of Core.

- deepthi@khaleejtimes.com