Abu Dhabi residential market rebounds with 16% year-on-year rise in rentals

• Strongest growth recorded during final quarter when rates rose by as much as 9%
• During next three years,  40,000 new residential units forecast for delivery across the capital

Dubai, 18 February 2014 — During 2013, rentals in the capital increased by an average of 16%, with the strongest growth recorded during the final quarter when rates rose by as much as 9%, according to the latest Abu Dhabi MarketView by CBRE, the leading international real estate consultancy. Rental increases were highest for one bedroom units which jumped 11% during the quarter.

The Abu Dhabi residential sector returned to growth during 2013, albeit in highly fragmented fashion. The recovery is expected to gather further momentum over the next 12 months, as the impact of the recent rent cap removal is felt in earnest.

Mat Green, Head of Research & Consultancy UAE, CBRE Middle East said, “The recent move comes at a time when housing demand was already on the rise, following the earlier Government intervention to change the conditions under which state run companies paid housing benefits to their employees.”

“Despite Abu Dhabi’s impressive return to growth, the market remains polarised in its performance, with significant variation found between the emirates key residential locations and by the age of the specific property.  With a large portion of the capitals housing stock now quite dated in appearance, there has been widespread tenant migration towards new developments upon completion, which in turn has resulted in sustained rental deflation for many older units,” commented Green.

The CBRE report states that the rental gap between properties location ‘off-island’ and those in ‘on-island’ locations remains firmly intact, with apartments in off-island locations 44% cheaper than those on the main island.  The average annual rental for a two bedroom apartment unit off-island is now AED66,500/unit/annum.  This compares with AED115,000/unit/annum on island.

“Whilst rental growth appears to be a new reality for the majority of residential tenants, the high volume of expected new supply may at least help to curb some of these inflationary pressures, although again this is likely to be location specific and dependent on the local market fundamentals.  Over the next three years, roughly 40,000 new residential units are forecast for delivery across the capital with close to 45% to be completed on Reem Island alone,” added Green.

Commenting on the outlook of the residential market, Green stated, “We can expect an increase in the level of residential investment activity, particularly within established master plan locations.  This in turn may lead to an increase in the number of new construction starts as we move through 2014, after what has been a relatively quiet period for the new development launches.”

The Abu Dhabi office market on the other hand witnessed a relatively quiet quarter, with only the sustained activity from the public sector helping to maintain the markets forward momentum, notes the CBRE report. This was reflected by a quarter of flat rental growth, with both prime and secondary rentals remaining static.

“Whilst enquiry levels for prime office accommodations have been positive over the past 12 months, the typical small size of these requirements (<500 m2) and the low number of completed transactions perhaps reflects the private sector demand dynamic at this time.   However, we expect to see a rise in occupier activity once the Al Maryah Island free zone becomes a reality,” commented Green.

According to the report, average prime rentals for Grade A commercial office spaces remained stable at AED1,850/m2/annum, although variation in headline rents were still evident, dependent on the quality of the individual tenant, lease structure and incentive packages. Secondary office rental rates also remained steady at AED1,200/m2/annum, although further rental deflation is expected during 2014 as new good quality developments are completed, and as the current flight to quality continues.

“It is hoped that the positive economic growth forecast for 2014 will also provide much needed stimulus for an improvement in the commercial office sector.   However, any recovery is likely to be constrained by the large volume of new office supply that will be delivered during the course of the year,” concluded Mat Green, Head of Research & Consultancy UAE, CBRE Middle East.