DUBAI - Transaction volume and rents in Dubai are expected to fall further as the property market bottoms out in a year, according to research by Jones Lang LaSalle (JLL).

The report said the market continued to be marred by oversupply and lack of suitably priced products, but added that Dubai and Abu Dhabi differed in terms of property supply pipeline.

The supply is past peak in Dubai across all sectors, it said, yet oversupply in Abu Dhabi is likely to worsen further in 2011.

The consultancy predicted the hotel real estate market in Dubai would be the first sector to recover.

JLL also identified a trend toward budget hotels and back to basics among Five-Stars.

In the hotel sector, Dubai will have only 3,400 rooms added to the supply line in 2011 compared with 7,700 in 2010, while Abu Dhabi will have 3,000 new rooms compared with 1,250 in 2010.

The report also noted a trend from super-malls to community-based retailing centres.

Total property transaction value in UAE plunged 35% last year compared with 44% increase globally.

Demand for office continues to remain constrained by oversupply, though tenants are prepared to take advantage of better market opportunities, JLL said.

Meanwhile, lower rents will continue to boost demand in the residential market.

Currently, the transaction activity in the market is held back by "unrealistic price expectations" and high cost of financing.

However, demand in 2011 will be restricted by uncertainty in the job market, rather than by mortgage trends.

The industrial sector is likely to be the winner due to increased interest from logistic occupiers from Middle Eastern countries as Dubai returns to its role as a trading hub, JLL said.

Infrastructure investment is expected to be the key driver for the real estate recovery in both Abu Dhabi and Dubai.

Infrastructure investment already announced in the transportation sector of $45bn makes the United Arab Emirates the country with the highest per capita spending in the world.