Oversupply of retail space in Abu Dhabi pushes rental prices down 58 percent: Report

Published April 19th, 2017 - 11:06 GMT
Yas Mall in Abu Dhabi. (Aldar Properties)
Yas Mall in Abu Dhabi. (Aldar Properties)

The residential and commercial property prices across Abu Dhabi are expected to decline further in 2017, according to a joint report by real estate expert JLL and UAE-based property platform dubizzle.

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The villas communities in the UAE capital experienced a decline of 5 per cent; with the steepest year-on-year decline in sales prices in Q1 2017 witnessed in Golf Gardens villas and Raha Beach villas dropping 11 and 8 per cent respectively, stated the duo in its Abu Dhabi Property Market Overview report.

Findings show a further decline in residential sale and rental prices in Q1 2017 compared to Q1 2016, as well as a decline in commercial and retail property prices, which is expected to continue throughout the year.
Residential sale and rental prices decline following reduction in transaction volumes and sentiment, it added.

On the apartment scenario, the report said the sale prices fell citywide by 5 per cent, with Al Reef Downtown apartment prices, Al Reef villas and Al Reem Island apartments dropping by 4, 5 and 7 per cent respectively.

The joint report revealed that villa projects experienced the steepest year-on-year decline in sales prices.

Golf Garden Villa prices dropped by 11 per cent compared to last year and are now selling at a median sale price of Dh1,005 per sq ft.

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A decline was also recorded for villas in Al Raha Beach (8 per cent), Al Reef (6 per cent), and Al Zeina (4 per cent), while Saadiyat Beach Villas experienced no change compared to last year with the median sale price per sq ft pegged at Dh1,524.

The rental prices for three-bedroom villas plunged 8 to 12 per cent; with villas in Al Zeina, Raha and Al Reef communities currently priced at approximately Dh225,000, Dh135,000 and 175,000 respectively.

The apartments for rent declined by six per cent for one-, two- and three-bedroom types citywide.                

According to JLL, the average Grade A and Grade B office rents have decreased by two and five per cent in Q3 2016 reaching approximately Dh1,760 per sqm and Dh1,030 per sqm respectively.

Similarly, apartment sale prices decreased with Al Reef Downtown and Al Reem Island apartments dropping by 4 per cent and 7 per cent respectively.

The continued reduction in transaction volumes and sentiment in the capital saw property sale prices decline in 2016, which has continued into the first quarter of this year, said the report.

"A decline both in the rental and sale segment is further expected in the capital - fragmented in nature, with some communities and property types to be affected more than others," remarked Ann Boothello, the senior product marketing manager of Property at dubizzle.

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"It’s important for developers to observe the property types in demand; Abu Dhabi is known for its family-feel, hence the most searched property types on dubizzle in 2016 for key popular communities showed two-bedroom apartments for apartment seekers and four- and five-bedroom units for villa seekers both in the rent and sale segment. This is very different to Dubai, where 1 BR apartments in prime communities always taking the lead in search volumes," she stated.
According to her, residential rental prices within prime areas continue to decline due to higher vacancy rates due to challenges within certain industries such as petrochemical and financial services sectors in 2016, particularly affecting the higher-end segments and larger residential units.
The report has revealed that rental prices for three-bedroom villas in Al Zeina, Al Raha and Al Reef decreased by 8 to 12 per cent compared to last year.

Two-bedroom villas were the most popular search properties in Al Reem Island for rent, which experienced the shallowest dip in price (7 per cent), while one-bedroom apartments declined the most (15 per cent).
David Dudley, the head of Abu Dhabi Office, JLL, said the emirate witnessed significant supply completions from 2009 to 2014 across all sectors due to major land releases following the launch of the 2030 plan and the creation of large-scale master developments across the UAE capital.

"This led initially to over-supply and increased vacancy rates, followed by market absorption as major government spending plans and improved sentiment fueled demand," he added.
JLL and dubizzle said they anticipate a further decline in certain sub-sectors over the short term due to the current decline in demand growth and sentiment, and in some sectors, increased supply.

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"Since 2015 annual supply completions have dropped to long-term lows as the market adjusted, liquidity tightened, developers became more cautious and due to the impact of tightened planning policy and the new real estate regulations," noted Dudley.

"This reduction in annual supply completions is welcomed at a time of weaker demand. While demand has reduced largely due to the decline in oil prices and the resultant impact on government spending and sentiment, reduced supply completions have mitigated the extent of over-supply," he added.
According to dubizzle data, search volumes for office rental space almost halved (47 per cent) between Q1 2016 and Q1 2017, indicating less demand for commercial property comparing Q1 2016 to Q1 2017.

Commenting on the commercial market, Boothello said: "Demand for office space has remained generally flat during 2016 due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slowdown in government spending."

"Average Grade A and Grade B office rents have decreased by 2 and 5 per cent in Q3 2016 reaching approximately Dh1,760 per sq m and Dh1,030 per sqm respectively," she stated.    
According to her, the rise of high profile mergers such as NBAD and FGB, as well as Mubadala Investment Company and IPIC, have also caused shifts in the capital’s office scene.
In terms of retail space, rental prices have declined by 58 per cent while the sales costs have gone down by a sweeping 84 per cent.

"We expect the market to remain suppressed this year and next, although there are signs of 2017 and 2018 supply completions being higher than 2015-2016," stated Dudley.

"As market conditions start to improve in Dubai and government spending returns to Abu Dhabi, the market will head back towards recovery and it will be important for supply completions to remain balanced," he added.

Copyright 2022 Al Hilal Publishing and Marketing Group

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