DUBAI (Reuters) – Property prices and rents in Dubai are expected to continue to decline in 2010 due to oversupply and tight liquidity despite an improvement in economic conditions, a report said on Sunday.

“Tight liquidity condition and high cost of borrowing continues to make it difficult for developers to complete projects,” said real estate investment and advisory firm Jones Lang LaSalle in the report.

Dubai, part of the United Arab Emirates, suffered a property crash in late 2008 on the back of the global financial downturn, leading to billions of dollars in project cancellations and thousands of job losses.

Weak demand from foreign investors due to more competitive prices and faster capital appreciation in other areas globally will lead to continued decline in rentals and values of residential and office markets for 2010, worsened by significant levels of new supply entering the market, the report added.

High maintenance and service fees are also impacting investors’ net returns.

“With the rate of decline in both values and rentals remaining well below those experienced in 2009, all sectors of the market remain in the late downturn stage of the property cycle,” it said.

In its outlook for the next 12 months, Jones Lang LaSalle forecast an increase in office space demand as rental prices decline further and global and local economies expand.

“The market is therefore expected to continue to shift in favor of tenants over the next 12 months. Given the wider selection of properties from which to choose, occupiers will continue to be discriminatory when closing deals,” it added.