The raft of firms opening in Dubai in recent months is leading to falls in charge-out rates in the region. Top 10 UK firms, as well as smaller City rivals, are among those reported to be undercutting fees for work, with lawyers operating in the market saying the trend has increased significantly over the last 12 months.

Energy, project finance work and construction are named as practices where undercutting is most likely to happen, with those trying to build relationships with sovereign wealth funds also likely candidates.

Dubai has been an investment focus for numerous firms over the last few years, with Latham & Watkins the most recent entrant to the market, having launched in three Middle Eastern locations last month.

Meanwhile, other City firms, including Freshfields Bruckhaus Deringer, have been ramping up their presence in the region by transferring senior partners from London to Dubai. Freshfields recently moved former City finance chief Bob Charlton and veteran energy and infrastructure partner Charles July to its Dubai base, which opened in 2005.

Commenting on the trend for fee cutting, Ashurst's local managing partner, Nick Bryans, told Legal Week: "There is pressure on fees across the board on the corporate side and some firms are willing to do work at rates which are not sustainable in the long run. If you are new in the region you want to get deals under your belt and establish a track record but you also want to keep your lawyers busy."

Gerard Hobby, an in-house legal adviser at Dubai Holding, said: "What I have noticed is that on the differential between the discounts offered by established firms comparative to newer firms in the Dubai market, that differential is growing."

Firms to have opened in the region over the last 18 months include LG, Gibson Dunn & Crutcher, Lovells and Herbert Smith. Meanwhile, Dewey & LeBoeuf opened its first new office as a merged firm in Dubai at the beginning of this year.