Dubai: With rents continuing to drop, landlords in Dubai and Sharjah are bringing forward apartment renewal negotiations to try and retain their tenants – even before they start looking around at options elsewhere.
“Landlords, especially in Sharjah, are going out of their way to commit existing tenants to new rental terms even if there are two to three months still left on the current lease,” said a real estate agent. “These days, having their apartment go for months without a tenant is the biggest fear gripping landlords. By bringing forward their rental renewals, they stand a better chance of convincing existing tenants to stay on.”
In Dubai, rents in some of the most affordable locations are seeing sharp declines, according to the latest update from Core, the property services firm. Dubai Sports City and Dubailand ae the worst affected, seeing declines of 20 per cent and 18 per cent during July to September compared with a year ago.
A combination of tenants moving out due to changes in their job situation and more new homes going for rent are the main factors in the steep declines. (And the least hit are Downtown and the homes on the Palm, where rents are down only by 6- and 9 per cent, according to Core states.)
Forced to agree
In the majority of new leases, rents are seeing a downward revision by more than 10 per cent. Or, landlords have managed to keep the same rents… but by agreeing to throw in one or two months of free living for the tenant.
“This has led many tenants to remain in their current premises as they have been able to achieve rental savings while avoiding uncertainty, hassles and additional moving costs,” said Prathyusha Gurrapu, Head of Research at Core.
Pandemic imposed changes
Tenant choices have also been influenced by the COVID-19 attack and the lifestyle changes this has forced on them. If given a choice and with funds available, many tenants would prefer to move into homes with just that little bit more of space, both indoor and on the out.
It may explain why rents for villas in Dubai are dropping at a slower pace than those on apartments. But keep a close tab on costs – “We have seen a section of tenants upgrade to bigger units or move from apartments to villas,” said Gurrapu. “Nonetheless, most of these upgraders are paying lower than previous rents with very few going above their past rental outflows.
“It is also interesting to note that moving from apartments to villas may at the outset offer lower rents. But villas may involve hidden costs such as higher DEWA and maintenance charges that offset savings – a factor tenants should account for during relocations.”
Number of new homes delivered in Dubai between January to September
Spectre of service charges
Indeed, the question of service charges is starting to hurt landlords’ prospects with homes in popular freehold locations, when it comes to finding tenants. “If a prospective tenant finds that the landlord is dumping service charge costs into the actual rent, there is little chance of a deal being made,” said a real estate agent. “Service charge costs is becoming a key factor in deciding leases, nearly as important as the rent itself in freehold locations.”
A great relocation
The biggest changes to the rental landscape are yet to come. Rental costs will be the first expense tenants will be trying to cut further if they are stuck with the 30-40 per cent cuts on their salaries. Landlords who are unwilling to come down by 10-15 per cent on their rental expectations might have to wait long before securing a tenant.
“With household incomes expected to remain under pressure, we foresee relocations to continue with a majority of tenants remaining price sensitive,” the Core report adds. “Faced with a new financial reality, tenants are either looking to find the current (albeit corrected) rental value of their property to help them negotiate rent reductions with their landlords or relocate and reduce their rental outflow.”
For landlords and tenants, the time for hard realities and tough negotiations have started…