Rental pressures mount on Abu Dhabi homes

The pressure on Abu Dhabi’s residential rentals could continue as about 4,000 new homes are delivered this year, with 1,600 of them on Reem Island alone.

Abu Dhabi’s property market is caught in a situation where rents have seen declines in 2016 despite limited new handovers having taken place last year.

According to a new report from Asteco, only 1,400 units were added to Abu Dhabi’s housing stock in 2016, of which 1,350 were apartments.

This is why a higher than average supply of new homes will have an impact on rental negotiations this year. Even then, any future declines will be selective. “Whilst developments that witnessed a reduction in rents last year are likely to

remain stable during the first half of 2017, projects that managed to maintain rates throughout 2016 are expected to see some adjustments,” states the report.

(For comparison’s sake, Dubai could see well over 20,000 units handed over this year as against just over 10,000 in 2016.)

Then again, Abu Dhabi’s residents have another plus on their hands — the 5 per cent rental cap was reinstituted by the city authorities recently.

As such, high-end apartments in the city saw drops of 6-9 per cent last year.

Rental pressures

Now, the rental pressures could extend down the value chain. “Residential units that were previously able to maintain rental levels due to the reluctance of existing tenants to move, are now more likely to be affected as residents in search of the best value-for-money become more frequent,” said John Stevens, Managing Director of Asteco.

“High-profile corporate mergers in the pipeline are expected to lead to increased job uncertainty and could affect employee benefit packages, including housing allowances over the next few years.”

This then raises the “potential for softening demand and therefore declines in market rates.”

Currently, the average rent of a high-end two-bedroom property on Abu Dhabi Island would be Dh141,000 after experiencing a 10 per cent dip. A two-bedroom apartment in Khalidya/Bateen was down 13 per cent to Dh146,000. (Also, last year, mid- and lower-end apartments had a 5 per cent softening, primarily during the second half of last year, brought on in the main by mounting job losses in key sectors.) Meanwhile, Abu Dhabi developers are now focusing attention on the mid-market. Aldar Properties confirmed on Tuesday (February 14) that its Reem and Yas Island master-developments will feature dedicated mid-tier communities aimed at buyers with Dh10,000-Dh25,000 monthly incomes.

Asteco reckons sale values were lower by 4 per cent on average during 2016, with Reem Island reporting an overall decline of 8 per cent.

“Transaction activity in 2016 was lower compared with previous years — this was mainly due to a limited amount of supply of completed units available for sale,” the report says. “A number of deals were achieved at below market rates.

“Sales prices for projects located at Al Raha Beach remained relatively stable throughout the year, although only few transactions were recorded.”

How each asset class fared in Abu Dhabi

* As with apartments, villa rentals were down by 5 per cent on average, with the Al Raha Beach area being worst off having seen a 10 per cent decline. “Mature villas, which previously recorded high rental rates, have been affected the most, which resulted in an increase in vacancies in some communities,” said Jon Stevens of Asteco.

* Demand for large offices will be on the lower side, with “Landlords are expected to continue to subdivide space in order to entice new take-up. The Abu Dhabi office market will continue to see moderate declines, especially in buildings with limited parking space.”

source : gulfnews