Dropping in Demand Results in 2 Percent Fall in Abu Dhabi Rents

Published July 24th, 2018 - 10:24 GMT
Rents have been negatively impacted by weak demand following job losses and cuts in housing allowances leading to more vacancies. (Shutterstock)
Rents have been negatively impacted by weak demand following job losses and cuts in housing allowances leading to more vacancies. (Shutterstock)

Muted demand, cautious investor sentiment and increased supply weighed on all asset classes in Abu Dhabi. Residential rents and sales prices continued to decline in Q2, according to a report issued by consultancy JLL on Monday.

Apartment rents declined by a further 2 per cent quarter on quarter and 9 per cent year on year, which can be attributed to the continued increase in supply completions at a time when there has been a contraction in employment levels, says the report. Residential vacancies are expected to increase further in 2018, causing further rental declines.

Rents have been negatively impacted by weak demand following job losses and cuts in housing allowances leading to more vacancies. Approximately 650 units were delivered in the capital in Q2 2018. JLL estimates a further 7,000 residential units to enter the market by the end of 2018, mainly within Reem Island, Saadiyat Island and Yas Island. However, a significant proportion of this could be delayed.

Residential sales prices have also continued to fall, with average prices for prime villas registering a 7 per cent decline in Q2 (-19 per cent year on year) and apartments registering a 3 per cent quarter on  quarter decline (-9 per cent  year on year). However, the three-year Dh50 billion stimulus package announced in June is expected to have a direct impact on the capital's real estate sector.

"The new government economic stimulus package has positive implications for the Capital with new initiatives directly impacting the real estate market and as with previous government stimuli should lead to an upswing in investment," said Peter Stebbings, national director and head of Abu Dhabi, JLL. The economic package will lead to reduction in costs for developers and provide dual licences for companies located in free zones to bid for and undertake government tenders outside the free zone, said JLL in its second quarter Abu Dhabi real estate market review. The UAE Cabinet earlier this year also said it would allow 10-year visas for expats and 100 per cent foreign ownership in companies outside of free zones. JLL said these measures would boost sentiment in the Abu residential market, providing expats with more security over their rights to remain in the UAE.

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Office market

JLL said office rents declined slightly in Q2 as consolidations continued to take place and companies chose to downsize. "Employment levels in Abu Dhabi continue to be affected, specifically in government agencies and financial service entities, placing downward pressure on rents," the report added.

JLL estimates approximately 39,000 sq m of office GLA to enter the market by the end of 2018. Deliveries in 2019 are expected to be significantly lower as developers remain cautious due to subdued demand for additional office space.

There is greater competition and more choice of space available to tenants, who have the upper hand when it comes to negotiating terms and conditions, including rents, rent-free periods, fit-out contributions and other concessions, particularly within Grade B office buildings.

The hospitality market registered a 2 per cent increase in occupancy levels and a 7 per cent drop in average daily rates compared to the same period last year. Consequently, revenue per available room (RevPar) declined by 4 per cent in YT May 2018 compared to the same period last year. 


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