“In aggregate, the villa market experienced positive rental rate growth for the first time since 2008/2009, with average lease rates increasing by 3% quarter-on-quarter,” the report said. “However, rates remained down by around 1% year-on-year.”
The highest increase in lease rates occurred in the two bedroom sector at 5%, followed by five and six bedroom units which both increased by around 3%.
Areas offering an established community environment, combined with quality amenities and facilities continue to see the highest levels of growth and also remain in relatively short supply. In particular, developments such as Emirates Living and the Palm Jumeirah have shown positive growth over the last three quarters, the report noted.
“Overall lease rates in Emirates Living have increased by 6% year-on-year, with a two bedroom villa in the Springs which was achieving a lease rate of Dhs70,000 to 85,000/unit/annum in Q1,2011, currently being offered in the range of Dhs85,000 to 100,000/unit/annum – depending on the location and quality of the villa,” the report said.
For apartments, the highest increase in Q1 was for one bedroom units, which grew by 2% during the quarter, while three bedroom units grew by 1%. The highest increase in lease rates took place in the Greens at 7%, followed by Downtown Dubai where rates grew by 6%.
While rental rates are rising in prime areas, emerging residential locations such as International Media Production Zone, Dubai Sports City, Dubai Silicon Oasis, Dubai Investment Park and Jumeirah Village continue to see deflationary pressures on lease and occupancy rates due to the current lack of facilities, amenities and developed infrastructure.
Lease rates in Dubai Sports City range between Dhs30,000-36,000/pa and Dhs40,000-55,000/pa for one and two bedroom units respectively, unchanged from the previous quarter. On a year on year basis, apartment lease rates in emerging locations have fallen by around 7%, with low high vacancy rates prevailing.
Looking ahead, CBRE predicts that the residential sector will see area-specific strengthening of lease, sales and occupancy rates as pipeline supply in developed locations has become increasingly scarce. The market for established villa locations such as Emirates Living, Arabian Ranches and Palm Jumeirah will remain strong during 2012 with limited new inventory expected in these locations.
However, new supply will enter from emerging areas such as Jumeirah Park, Al Furjan and Jumeirah Golf Estates, which will result in an expanding villa inventory over the next 12 to 15 months.
CBRE’s findings are consistent with other recent studies by industry analysts. Real estate consultancy Asteco’s first quarter report found that overall rental rates for apartments and villas in the emirate rose by one per cent on average in Q1. Downtown Dubai rents were up five per cent, followed by Jumeirah Beach Residence (JBR) at four per cent and Jumeirah Lakes Towers (JLT) at three per cent.
Rents in Meadows and Green community climbed by three per cent, respectively, while Arabian Ranches reported a two per cent jump, Asteco said.
Meanwhile, Global Investment House said recently that rents have started to increase in select areas of Dubai after the pace of rental income slowed down significantly in 2011, but will continue to fall in less desirable communities.
“The pace of decline in Dubai rents slowed down significantly in 2011 and is starting to shift gradually into selective increases in areas of higher quality and demand,” GIH said. “We expect improvements in rental rates to be capped in the short term by new supply and declining rents in the outskirts of the city.”
GIH estimates the Dubai market is currently 20% oversupplied, which means that 67,000 units are currently vacant. “We expect this figure to increase as an additional 20,000 units are scheduled to enter the market in 2012, representing a six per cent increase on the current stock,” the report said.