A report recently published by CB Richard Ellis considered that the real estate sector in Abu Dhabi is still falling behind the Emirate’s moderate economic recovery.
Overall, the office sector remains sluggish with a large volume of new supply expected before the year end, thus driving lease rates further down. Despite the existence of demand from some commercial occupiers, many tenants appear to be waiting for the bottom of the current rental cycle before seriously pursuing new space requirements, as per CB Richard Ellis.
Prime office rents during the quarter remained flat at around AED 1,600 – AED 1,900 per square meter per annum, although rental variations were evident depending on the specific tenant and overall incentive package offered. Secondary and inferior office products continue to suffer from widespread rental deflation which has averaged 8% since the start of 2012, with rents for poorer spaces now observed from as low as AED 750 per square meter per annum. The most prevalent demand segment remains companies seeking small accommodation sizes from 300 – 500 per square meter. As market uncertainties slowly dissipate, a more active leasing market should start to emerge with higher demand expected from the private sector, as per CB Richard Ellis.
Supply of residential units are on the increase, with a large number of high-end developments reaching the market this year, helping to diversify the existing product mix with an upscale lifestyle experience that was previously out of reach in the capital.
However, when it come to prices, the residential market continues to witness declining rental rates as the second quarter of 2012 reported a fall of 4% over the previous one and of 24% from the same period last year. Yet, this is in contrast to some new luxury schemes where rental values have remained broadly static over the period on the back of solid occupancy rates, strong corporate interest and the continued flight to quality.
The recent amendment to Abu Dhabi’s visa law has drawn concern amongst lower-income expatriates who may be directly impacted by the potential amendments, where the proposed visa rules may have the impact of increasing housing costs for the relatively high proportion of the population that is currently residing in shared accommodation. In case the government implemented the no-sharing policy, the demand for smaller residential unit types would probably escalate on the expense of the demand for larger properties, as per CB Richard Ellis.
Deflationary pressures are likely to persist during the second half of 2012 as new supply continues to outpace growth in demand and heightened competition aggravates already falling rents. As a fragmented marketplace increasingly becomes apparent, location and quality- specific disparities are likely to widen as occupiers look to upgrade amidst availability of greater options in the market, as per CB Richard Ellis.
Mena Weekly Monitor – Bank Audi