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Serviced apartment rents drop 30%
Rents for serviced apartments in Dubai have dropped by 20 to 30 per cent since last August, according to real estate agents.
"The
recent rent drops across Dubai have affected the serviced sector as
well," Mohanad Alwadiya, Director of Harbor Real Estate, told Emirates Business.
"A one-bedroom serviced apartment in The Address hotel at Downtown Burj
Dubai cost around Dh150,000 per year to rent in August 2008. However
currently it is priced at about Dh115,000.
"At Madisson Tower, a
serviced apartment building at Tecom, a one-bedroom apartment was about
Dh110,000 per annum but is about Dh75,000."
Agents said though rents for unfurnished apartments has dropped across Dubai, rents for furnished units remained higher than those for non-furnished ones.
"The
drop in rents for serviced apartments is lower than the average drop in
standard residential rates, which stands at about 45 per cent since
last year," said Alwadiya. "The difference is mainly driven by the
strong hospitality industry in Dubai and the attractive yields that
operators continue to offer to investors. Many developers are
converting their units into serviced apartments in response to the poor
sales market.
"This trend is picking up but mostly among solid,
reputable developers that have the capability to manage such assets.
Tameer Holding is considering converting its Platinum Tower into a
serviced apartment building."
Element Real Estate is looking to
convert two planned apartment projects at Culture Village and Downtown
Burj Dubai into residential serviced apartment buildings.
"The
developer asked us for feasibility studies on the projects and we
suggested converting them into serviced apartment buildings."
Nikki
Doyle, Assistant Operations Manager for Short Term Rentals at Better
Homes, said at the moment the residential rental market is very
competitive.
"In most areas, clients are paying about 30 to 50
per cent more rent – based on monthly rates – for a serviced apartment
than for a long-term unfurnished property," she said.
"For
example, a one-bedroom apartment in Old Town might lease for Dh100,000
to Dh110,000 per annum. However, in the short-term market we would
lease the same property for about Dh13,000 to Dh15,000 per month."
According to newspaper advertisements, a hotel in Bur Dubai is renting out rooms for Dh76,000 per year or Dh6,300 per month.
The furnished rooms come with LCD TV, high-speed internet and daily housekeeping services
Alwadiya said the average return on investment (RoI) for landlords from serviced units was about eight per cent per annum.
"We
sold 31 serviced apartments at the Bonnington Hotel at Jumeirah Lake
Towers in April and they were offered to the client with a 10 per cent
guaranteed yield for five years from the operator and the developer.
Having said that, luxury serviced apartment developments normally
generate a seven to eight per cent annual yield.
"Furnished
apartments command a higher premium, which ranges between eight and 15
per cent depending on the quality of the furniture. Also, the rent
deposit amount is higher for furnished apartments – it is usually 10
per cent of the annual rent whereas with unfurnished apartments, it is
usually five per cent."
David Schuin, Commercial Manager at
Sherwoods Property Consultants, said the RoI varied from project to
project and depend on the contract.
"Typically investors who
wanted to get into the serviced unit business would enter into an
agreement with the building operator to put their apartment into the
rental pool," he said.
"The operator would then rent out the
apartment either on a short or medium-term basis. The proceeds from the
rents would be placed in a central pool to be shared by the various
investors each year, minus the operator's management fee and the
service fee for the development.
"The RoI for investors would
therefore be linked to the operators' ability to fill the rooms on a
regular basis. The higher the occupancy rate the higher is the RoI. The
return from serviced apartments is generally expected to be higher than
typical residential rental income as the rates for short-term rents are
substantially higher than for conventional rents."
Meanwhile,
agents said tenants remained cautious about Dubai's real estate sector
despite signs of stabilisation and were increasingly seeking short-term
contracts rather than signing lengthier tenancy agreements.
Doyle
said: "Many tenants now see short-term rentals as a better solution
because of break-lease issues and uncertainty in the market. Many are
looking for as little commitment as possible.
"But most
landlords, who have finance for a property, are looking for a more
secure rental return and will still opt for long-term leasing as it
provides a steadier flow of income. However, it is more difficult to
lease furnished accommodation in long term."
Schuin said the facilities offered by serviced apartment operators varied among developments.
"These
apartments are typically furnished and fitted to the standard set by
the operator," he added. "Many services are offered including cleaning
and laundry for bedding, and in many cases there will be room service,
TV and wireless internet. The operator is normally responsible for
maintaining the standard of the services and the apartment in line with
the pact."
Louise Pitt, Director of Leasing at Landmark
Properties, said the cost of maintenance of serviced apartments is
usually included in the rental price.
"The rental can include
cleaning, linen, maintenance, room service, internet connection,
business centre, use of meeting rooms and concierge facilities, among
other comforts," she said.
"People who are attracted to such
units are those planning to stay longer than the average hotel occupant
and are, therefore, looking for more space than just a hotel room. They
need the space of an apartment but require the services and facilities
a hotel would offer."
Schuin said the serviced apartment sector in Dubai was under pressure to reduce rates to achieve higher occupancy levels.
"Rates in Al Barsha have in some instances fallen by up to 25 per cent," he said.
Pitt
said finance to purchase serviced apartments was available depending on
the project, the developer and the buyer's criteria.
"There are
no finance arrangements available if the lease tenor is below one
year," she added. "Beyond one year finance is available only if the
prospective tenant has been resident in the UAE for more than six
months."
Schuin said financing was available for the serviced
apartment sector depending on the arrangements between the developer
and the banks.
"Finance is dependent on bank criteria, which will include the applicant's credit status," he said.
The
agents said though the 'serviced' concept was more common in the
residential sector, serviced offices are popular with some companies
because of the flexibility they offer.
Schuin said: "The
commercial equivalent of serviced apartments are business centres and
serviced or managed offices. The serviced office industry is becoming
more popular among corporates and small- to medium-sized enterprises as
it provides the companies with flexibility in terms of space.
"Also
if an office occupant is looking for tenancy periods of up to three
years it makes financial sense as the company does not have to provide
capital to fit out offices. In addition, the serviced office concept
offers immediate space that has all the basic requirements such as
phones, meeting rooms and internet connections."
Alwadiya said demand for serviced office units came mostly from the small business segment.
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