Abu Dhabi: Lower rents reflect changing supply-demand dynamics

Rental levels in Abu Dhabi have continued to decline with mixed fortunes for landlords depending on location, quality and price in Q4 2010, according to a new report published today by leading UAE property management company Asteco. 

Due to the increasing amount of supply, apartment leasing rates have steadily declined over the last three months of 2010, dropping by an average of 7% whereas on-island properties have only reduced 6% during the same period. A number of factors such as price-driven demand, reduced company housing allowances and landlords being flexible with rates, have contributed to the decline. A two bedroom apartment in Al Raha

Beach will now lease for between AED120,000 to AED190,000 annually. 

Looking ahead at 2011, Elaine Jones, CEO, Asteco Property Management commented, “Many new opportunities will arise in 2011. Buyers and tenants will have a wide range of choices shortly, as the long-awaited first phases at Reem Island come on to the market, together with new supply at Al Raha Beach. This will undoubtedly add further downward pressure on resale and rental rates throughout the capital moving forward.” 

In contrast although villa rents have declined on average by 5%, those properties in master-planned communities with good facilities have managed to out-perform the market, recording modest increases of 4% compared with Q3 2010. This trend has continued from the previous quarter, indicating that tenants are still prepared to pay more for quality and amenities and that there is real demand for this type of property development. 

Golf Gardens, situated next to the Abu Dhabi Golf Club on the mainland, is a good example of this, realising 4% growth on top of the 12% it recorded in Q3 2010, especially for villas with pools. Annual rent for a typical three bedroom house here will now cost between AED250,000 and AED270,000. 

On the sales side, prices for villas have remained relatively stable over the last quarter with subdued activity. Many owners in Al Raha Gardens and Golf Gardens are naturally reluctant to sell due to their attractive rental yields. Prices for a four-bedroom house now costs between AED2.1 million to AED2.9 million and AED3.3 million to AED 4.2 million, respectively. 

Apartment sales on the other hand have dropped another AED50 from last quarter to as low as AED950 per square foot in Marina Square highlighting the presence  of some distressed sellers faced with unaffordable final payments on handover. In addition, low sales volumes, uncertainties about handover dates and risk-averse sentiment, have been contributory factors in keeping downward pressure on sales prices. 

“Many potential buyers realise that nearly 2,300 apartments and 200 villas are scheduled for delivery in the second half of 2011 at Al Muneera and Al Zeina, which will push overall market prices down further,” said Jones. 

Office rental rates have continued their downward trend from last quarter, albeit at a slower rate, losing 7% across the sector. Again it was lower quality stock that suffered the biggest declines of up to 11%, as a result of low specifications and inadequate parking. Asteco expects many companies to relocate to better quality offices with ample parking throughout 2011 with the delivery of a number of new office developments. Annual headline rental rates for new fitted office space varies from AED1,250 to AED2,100 per square metre.  

Meanwhile, Al Ain is witnessing healthy demand for commercial office space as new laws force existing companies to move out of villas and from new companies setting up in Al Ain. A lack of purpose-built office space is therefore driving rents up, even after a jump of 10% and 13% in the office and retail sectors respectively from the previous quarter. 

Al Ain’s residential apartment and villa rental rates fell by an average of 3% and 4% respectively due to many Abu Dhabi and Dubai commuters leaving and inappropriate (small units) new stock coming online. Asteco expects a surge in demand when a number of government entities and hospitals are opened which should stabilise rents in the medium term.