Report forecasts rents in Dubai might decline further

The cost of renting a new shop in Dubai is set to fall even further from the 29 per cent it dropped last year, says a report by a property consultancy. Average retail rents fell in the fourth quarter of last year to about Dh264 (US$72) a square foot, down 29 per cent from the corresponding quarter in 2008, data from Jones Lang LaSalles's Dubai Real Estate Market Overview report showed.

"The market is moving in favour of the tenant," said Craig Plumb, the head of research for the MENA region at the property consultancy. "Landlords are more receptive to reducing rents and offering shorter leases or break clauses for the tenants." The cost of renting a new shop in Dubai began to slip for the first time in at least a decade last year. The change came as new shopping centres opened, greatly increasing the emirate's retail space as consumers scaled back spending.

This resulted in better bargaining power for retailers seeking new shops, but not existing lease agreements. Data on average rental values from Jones Lang LaSalle, compiled by contacting landlords for quotes each quarter, showed Dubai retail rents fell by 6 per cent in the second quarter, 12 per cent in the third quarter and a further 13 per cent in the fourth quarter of last year. The decline accelerated slightly at the end of last year because of Dubai World's call for a debt standstill in November, Mr Plumb said.

"The fourth-quarter numbers reflected a bit of extra uncertainty with some issues around the whole Dubai World restructuring, and less confidence in the market," he said. But retailers say that while there has been more discussion about lower rental rates, little action has been taken in the emirate's prime shopping centres. Abdulla Ajmal, the deputy general manager of Ajmal Perfumes, said he had not seen any reductions in rents for new shops.

"There has been a tremendous amount of discussion," Mr Ajmal said. "We have approached different malls and, yes, they all acknowledge it. But no action has taken place." Mr Ajmal said his company would respond with a conservative expansion. "We're not going to take on any more stores at the moment. We're going to be very selective" Saif Belhasa, whose group of companies opened a restaurant division last year, said he had also scaled back retail expansion plans, in part due to stubborn rental rates for new stores.

The chairman of the Saif Belhasa Group said he hoped mall developers would change their tone in six months. "The market is down of course, but still they have not accepted that the market is down," Mr Belhasa said. "They will need some time." Mr Plumb said not all shopping centres were reducing their rates, but on average the market was heading towards lower rents. He expected retailers would have more bargaining power this year as landlords adjusted to the market conditions.

"It's a bit of a time lag with landlords adjusting to the new realities of the situation," Mr Plumb said. "They can ignore those trends for a short time, but over a longer time the market will have to adjust to the new norm, which means that tenants have more choice, and if (landlords) want to fill their vacant units they will have to be competitive." @Email:[e-mail]