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Landlords willing to negotiate rents in Tier 2 areas

dubai - Tenants on existing leases are generally not finding the same level of flexibility from landlords

If you are a new tenant seeking out rental accommodation in Dubai, you are at an advantage. Landlords of new properties in Dubai's secondary locations are becoming increasingly generous in their negotiations with prospective new occupiers, says the Q2 market report by real estate consultancy CBRE.

However, tenants on existing leases are generally not finding the same level of flexibility from landlords, although rental increases are becoming less prevalent.

Future supply levels continue to grow at a rapid rate, with a significant pipeline of new properties set to be completed in the build-up to Expo 2020, with annual deliveries rising well above the five-year average.

Rents are set to see further pressure in the second half of 017, giving bargaining power to new tenants. This is likely to result in further rental discounts, flexibility on the number of cheques and even rent-free periods for some secondary locations, estimates CBRE.

"The sales market has witnessed an improvement in transaction numbers during 2017, with off-plan properties remaining favourable among investors, underlining the speculative nature of the local market," said Mat Green, head of research and consulting UAE, CBRE Middle East.

Residential sales prices fell by close to one per cent during Q2 2017, with the sector slowly edging towards the bottom of the market, with just a two per cent drop recorded year on year.

Office market
Dubai's office market saw a fragmented performance, with stable conditions for many prime free-zone and non-free-zone properties, but continued declines in the secondary market. Average prime rents have remained unchanged for five straight quarters at Dh1,920 per sqm per annum. This shows the scarcity of good-quality accommodation in key office areas.

Secondary office rents continued to fall, declining by around four per cent in Q2 to Dh1,000 per sqm per annum. With additional supply expected to be completed in locations such as Business Bay, Dubai Silicon Oasis and Jumeirah Lakes Towers in the short to medium term, there will be a further softening of rents.

Green added: "Latent demand for Grade-A office spaces remains, particularity for properties that are able to offer tenants a dual licensing option.  However, demand for typical onshore buildings in the traditional business districts continues to weaken, resulting in greater flexibility in leasing terms."

Hospitality market
Dubai's hospitality market was characterised by rising room supply. This led to discounted room offers as hoteliers strive to sustain occupancy rates and non-room revenues during the weak summer season. Average occupancy rates have risen 2.1 per cent year on year, according to STR. Average occupancy rates for the year to May reached 83.8 per cent versus 82.1 per cent during the same period in 2016.

"With developers pushing to complete hospitality projects in time for Expo 2020, supply levels continue to expand rapidly, with over 35,000 new hotel keys and hotel apartments to be completed by the end of 2019. The vast majority of these properties are found to be 4-star and 5-star hotels, reflecting the market orientation towards higher quality products despite government incentives to increase the focus towards mid-market rooms," concluded Green.

- deepthi@khaleejtimes.com