Landmark Advisory: New Rental Law Unlikely to Significantly Impact Rent Levels in the Capital

Published March 23rd, 2010 - 09:17 GMT

In a follow up to its latest sales guide, Landmark Advisory, one of the leading real estate consultancy companies in the Middle East, today issued its March lease guide for the Abu Dhabi market. Compiled in collaboration with LLJ Property, a leading real estate agency in Abu Dhabi, the guide shows further rental declines in the capital.

Landmark Advisory anticipates that rent declines in the UAE capital will remain closely linked to new supply entering the market. “Even before the change in the rent law, we predicted that lease rates in the capital would gradually decrease in 2010. Over time the new rental law will help to bring down rents; however, in the short-term, it is not likely to significantly impact this rent trajectory,” explained Ms. Jesse Downs, Director of Research & Advisory Services, Landmark Advisory. “Although we do anticipate an adjustment phase during which asked rents are expected to remain static, we maintain that actual rents will continue to decline.”

The report found that after decreasing on average 10-15 percent during Q409, apartment rents in the capital have continued on a negative trajectory with an additional decline of 5-10 percent. “Low quality apartments declined an average of 5% during January and February,” explained Andrea Menown, Leasing Manager, LLJ Property. “Although low quality apartments in many areas have not experienced rent changes, similar units in select areas, such as Muroor and the Tourist Club Area, declined up to 20-percent.”

Rents in off-island communities like Khalifa City and the Mussafah area have been more buoyant than on-island communities such as Muroor or City Centre. According to Landmark, this is because off-island communities had already experienced significant rental declines in previous quarters and rents are now very affordable.

In terms of villas, rents are continuing to adjust. Following an average rent decline of 10-15 percent in Q409, average rents declined another 5 percent during the first two months of 2010. “While on-island villa rents seem more resilient, off-island villa rents declined 5-10 percent in communities like Al Reef, Golf Gardens and Khalifa City A,” continued Menown.

“As more supply enters the market, from both newly completed supply and recently vacated units, landlords will need to bring their rents down in order to remain competitive. We expect an adjustment phase while landlords bring their expectations in line with market fundamentals,” explained Ms. Downs. “This phase will start in Q4-10 and Q1-11 when the new law will take effect. At this time more of the newly developed supply will be readily available throughout Abu Dhabi and specifically in the freehold areas like Al Reem Island and Al Raha Beach.”

The leasing guide also reviews commercial rents. Despite relative rent stability in Q409, commercial rents declined an average of 10 percent in January and February with areas such as Al Nahyan Camp, City Centre and the Corniche experiencing rent declines of up to 20 percent. In Q409, average rents in Abu Dhabi were around AED 2,100 per square meter, but these have since fallen to AED 1,900 per square meter.

“Office demand remains focused on smaller units, as companies in the capital remain extremely price conscious and do not want to commit to large office spaces. The majority of demand for large office space is linked to government bodies or government-related companies,” concluded Ms. Downs.


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