Dubai’s real-estate sector has had a mixed third quarter, with rental rates for villas recording a marginal quarter-on-quarter increase while rental rates for apartments suffered further declines.

Villa rental rates in Dubai increased by 0.7 per cent for the third, but apartment rates dropped by 2.5 per cent for the same period, according to UK-headquartered property consultant Cluttons in its Dubai Property Update, October 2011. This is a continuance of the trend witnessed in the second quarter, when real-estate consultant Jones Lang Lasalle recorded a quarter-on-quarter increase of 4 per cent in villa rents, but a drop of 1 per cent on apartment rents from the previous quarter.

In its property market update, Cluttons points to the “multifaceted’’ nature of Dubai’s real-estate sector, where property values in more some locations have increased by 1 per cent since the second quarter and other areas have recorded a drop in property values by 1 per cent. 

The commercial property market continues to be the worst-performing sector in Dubai’s real-estate market, recording a drop in leasing rates of 3 per cent. The reason for the poor performance is significant oversupply in certain areas. An example is Dubai’s central business district, where US-based real-estate consultant, CB Richard Ellis estimates that office vacancy rates are as high as 45 per cent. With about 0.6 million square metres of new office space expected to reach completion in 2011, vacancy rates are expected to surpass 50 per cent over the next 12 months.

Despite a quiet summer, analysts are confident that several new developments should boost the emirate’s real-estate sector going into 2012.

In June, the UAE federal government announced its intention to grant property investors a three-year residency visa, replacing the current six-month visa. This has long been seen as holding back the UAE’s property sector and is hoped will increase property transactions when implemented.

Further improvements to Dubai’s transport infrastructure are also expected to increase the attractiveness of the emirate’s real-estate sector to foreign investors. The opening of the new Green Line on the Dubai metro system is expected to have a positive impact on property in surrounding areas. Shopping malls near the Green line have already recorded an increase in visitors and the positive impact is expected to transfer to the residential and office sectors.

Dubai’s real-estate sector is already benefiting from the continuing political unrest in Bahrain and elsewhere in the region. According to Jones Lang Lasalle, agents are recording stronger demand in the sales market from GCC and other Mena residents. This increasing interest is expected to translate into higher residential sales moving forward.

The office sector is also expected to benefit from the political unrest in the region, as it emerges as a stable base for international companies looking to set up regional offices and headquarters.