Slowdown in new supply to ‘counter some of the downward pressure on rents’ – Abu Dhabi Islamic Bank report
Delivery of new properties in Abu Dhabi has hit a seven-year low, with the slowdown in supply having sustained only “modest” rental growth, a new report has found.
The first quarter of 2016 saw just 1,000 new homes delivered to the market, according to a report by Abu Dhabi Islamic Bank (ADIB) and its real estate advisory subsidiary MPM Properties.
The new Abu Dhabi homes were predominantly small- to medium-sized developments in Al Nayhan, Muroor Road and Mohammed Bin Zayed City, according to the latest Abu Dhabi Real Estate Market report.
“We are seeing a shift in market dynamics as the first quarter of this year has seen a constrained new supply of homes coming into the market with the residential market expected to see less than 2% housing stock growth in 2016 vs. an average of 4.5% p.a. over the last 7 years,” said Paul Maisfield, CEO of MPM Properties, in a statement.
“The slowdown in new supply will counter some of the downward pressure on rents, although a marginal correction is expected in the months ahead.”
The report found that overall capital values for completed apartments in the UAE’s largest emirate have remained broadly stable, driven by low transaction volumes, with both buyers and sellers reluctant to enter the market.
Across the villa segment, weak demand resulted in limited sales in most communities. The report said developers are countering market sentiment by offering attractive payment plans on off-plan residential sales to spur demand.
The report, which collates real estate market data and rental indices from transactions within ADIB’s portfolio of over 23,500 units under MPM Properties’ management, found that 38% of lease renewals completed during the first quarter of this year were agreed without any increase in rent, while 61% achieved a modest increase and 1% had a reduction.
Demand for office space in Abu Dhabi, which is driven mainly by the government sector, has fallen as corporations cut spending and put expansion and relocation plans on hold.
The ADIB report forecasts approximately 350,000 sqm of new office space, mainly occupied by owners, being added to the commercial stock by the end of the year.
The majority of the speculative space entering the market in 2016 is at City of Lights on Reem Island, with the remaining floors at Addax Tower due for handover, and in Omega Tower which is due to be completed later in the year.
Bucking the general office market trend is the Financial Free Zone on Al Maryah Island. With Mubadala releasing Al Sarab and Al Khatem Towers at ADGM Square, a total of 98,000 sqm of Grade A space has come on stream.
The retail sector saw no new supply coming to the market, but retail revenues in Abu Dhabi have come under pressure in the first quarter of the year as consumer spending softened. This trend is expected to continue throughout 2016 but reverse in 2017, as a rebound in oil prices and the expected launch of new government projects leads to an increase in consumer confidence.
The hospitality sector, on the other hand, saw an addition of approximately 210 hotel rooms during Q1 2016, the report pointed out. Key projects scheduled for completion this year include the Four Seasons, Marriott, Grand Millennium Bab Al Qasr Hotel and the Emirates Pearl hotel. The opening of the Louvre on Saadiyat Island in late 2016, and the $1 billion Warner Brothers theme park on Yas Island in 2018, is set to drive tourism growth over the next few years, ADIB said.