Rental rates for apartments and villas in Abu Dhabi have registered year-on-year drops of 6% and 3% respectively, while office rents have fallen 72% over their 2008 peak, as tenants look for more affordable options in the backdrop of economic uncertainty, according to a report by Asteco.
The real estate consultancy’s Abu Dhabi Property Review Q3 2016 report found that landlords in the UAE capital are coming under increasing pressure as tenants look to downsize and opt for value-for-money options, with large units being the most affected.
John Stevens, managing director of Asteco, said: “The ongoing redundancies across various industry sectors and the reduction of staff housing allowances continues to negatively affect demand in Abu Dhabi with a number of tenants opting to downsize and/or move to more affordable developments.”
In the commercial and office space sector, reduced oil prices continue to negatively affect Abu Dhabi’s economy, the Asteco report said. Office rental rates are currently at their lowest point since market peak in late 2008, with rates, on average, 72% lower. Rents in prime office buildings are now close to AED1,600 ($435.60) per square metre, representing a 4% decrease over the last three months.
“Large corporate and government entities often form the main tenants of prime office space, and with uncertain economic conditions and low oil prices, demand from these organisations has weakened considerably,” said Stevens.
On a quarter-on-quarter basis, villa rents in Abu Dhabi were down 2% on average in the third quarter of the year over the second. The highest drop was in Al Raha Gardens (6%) followed by Al Raha Beach Villas (4%), Asteco reported. Demand for older villas inside Abu Dhabi City has also dampened down with premium units most affected, with an average decline of 10% since the same period last year, the consultancy said.
Saadiyat Beach Villas were the only exception with rates remaining stable since the beginning of the year, recording a 7% increase compared with the same period last year, the report revealed, adding that rental rates for prime apartment projects on Saadiyat Island remained stable and close to full occupancy during Q3, while other prime and high quality apartments recorded a 1% decline compared with Q2 2016, falling by an average of 6% since Q3 2015. High-end units in the Corniche area saw rates drop by 9% from the same period last year.
“The majority of vacant apartments, which were offered at reduced rates in Q2, have now been leased, especially the smaller unit types (studio, one and two bedroom). This indicates that there is demand in the market, but value for money is the most important factor. In comparison, rental rates for larger and more expensive three and four bedroom duplexes and townhouses have fallen by 10% since the last quarter, with a high percentage remaining vacant for over six months,” Stevens said.
The report revealed the rental gap for high-end apartments between Dubai and Abu Dhabi reduced significantly over the last quarter as Abu Dhabi recorded further declines, coming more in line with Dubai. In Q1 2016 the price difference for one and two bedroom apartments between the two emirates was typically $5,445 per annum and this has narrowed to $2,722.
In terms of apartment sales, there was a nominal 1% average decline during the quarter, with projects at Al Raha Beach and Saadiyat Island, as well as Al Reef, recording sales price gains of 3% to 5% respectively, compared with the same period last year, Asteco said.