The stabilisation of rents across Sharjah's residential property market has resulted in rental costs remaining unchanged during Q1 2015, following a 23.9% increase in 2014, according to the latest research report by leading international real estate consultancy, Cluttons.

RESIDENTIAL MARKET

Cluttons' Spring 2015 Sharjah Property Market Outlook report shows that in Q4 2014 rental growth slipped to just to 0.5%, while in the first quarter of 2015, little or no growth in rents was recorded. Tenants who have been negotiating at renewal have found that the majority of landlords are increasingly nervous about void periods and are leaving rents unchanged. This follows an overall growth in rents of 23.9% over the course of 2014.

Steve Morgan, chief executive of Cluttons Middle East said: "There has also been a recent trickle of vacant units being returned to the market; something that has not been seen for a number of years. This is being driven by tenants being lured to Dubai once more as rents steady south of the border, as well as those moving further afield to Ajman, which is perceived to offer better value for money; particularly recently completed buildings."

Furthermore, with a growing awareness amongst tenants of their right not to have a rental uplift for three years under Sharjah Municipality rules, landlords are not willing to risk a loss of income by getting tied up in litigation on any irregular rent rises.

Morgan continued: "While the Municipality's system appears to be working for now, Sharjah may benefit from an official rent index, which would give the market a greater sense of freedom and would also encourage other investors to step in to the buy-to-let market. This would remove the constraint of income levels being effectively frozen for three years under current rules."

International research and business development manager at Cluttons, Faisal Durrani said: "While an official rent index would be welcomed by tenants, with widespread stability in rents taking hold, tenants are emerging as clear winners in the current residential market. The availability of alternative, competitively priced housing options not only in Sharjah, but Dubai and Ajman as well, means it is unlikely that we will see any strong turn around in the rate of rental growth in the short term, especially as the market's performance is very much hinged on how the surrounding emirates' real estate markets behave."

The Cluttons report indicates that there remains a handful of premium renters who are willing to pay higher rents to secure properties with perceived high quality finishing, views and facilities. In the Qasba Canal area for instance, 3-bedroom apartments let for between AED 110,000-115,000 per annum, considerably higher than the current three-bedroom average of AED 75,750 per annum across the rest of the city.

According to the report, investment activity remains robust with Sharjah's real estate market remaining a safe haven for refugee capital. At Tilal City for instance, where 1,800 mixed use plots went on sale at the end of last year, almost 70% of the plots in zones A and C have already been sold to investors. And while just under 50% of the buyers have been Emirati, Syrian buyers accounted for nearly 16% of total sales. The next biggest group of buyers were Pakistanis (8%), Palestinians (5%) and Kuwaities (5%); a very different make up to the transaction league table in neighbouring Dubai.

Durrani explained: "For some time now the market has experienced a steady stream of 'refugee' capital flowing into Sharjah. This is primarily because the city's appeal to regional investors goes deeper than attractive pricing. Its strong cultural identity and ties to Islamic heritage and tradition have proved invaluable in allowing it to emerge almost unchallenged in the region as a more easily accessible market when compared to Abu Dhabi or Dubai as it is perceived to offer better value for money."

COMMERCIAL MARKET

Cluttons' latest research report shows that rental yields in the emirate's industrial sector continues to perform well, with growth being supported by strong underlying demand. Interest and activity levels are also being driven up by infrastructure improvements across the city as well as the rezoning of Industrial Area 1 to commercial space.
Durrani continues: "The industrial market is one of the stand out performers in Sharjah's economy and the city continues to cement its position as the UAE's manufacturing hub. This strong growth has been reflected in the shortage of supply and the subsequent upward push on rents. In Industrial Area 18 for instance, rents have almost doubled from AED 16 psf three years ago, to between AED 25-30 psf today. With a rapidly diminishing amount of land available in the core Industrial Areas, this upward pressure on rents is likely to persist, with more peripheral estates also likely to benefit from spill over demand.

"At Saja'a and Emirates Industrial City, where rents stand at between AED 20-25 psf, we feel that infrastructure enhancements can help these areas achieve their full rent potential, particularly when compared to top end rents in some of the Industrial Areas, which can be as high as AED 45 psf."

The Cluttons report indicates that Sharjah's office market is performing in similar fashion to the residential market with rents stabilising during the first quarter of 2015, as the wider hydrocarbon industry scales back on take up activity, while oil prices level out.

Morgan concluded: "It is still too early to assess the impact of the low oil price environment on office rents in Sharjah given the rising importance of other segments of the economy such as SMEs, aviation and banking & finance, all of which are still active players in the market. While the impact still remains somewhat unclear, we are monitoring the situation."
 

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