There are a growing number of opportunities for commercial occupiers in Abu Dhabi, say experts.
Weak economic conditions, rising inflation and high costs of living continue to curb demand in Abu Dhabi’s real estate market, reports Cluttons, which is resulting in high vacancy rates in both the residential and commercial markets.
The residential market has seen capital values fall 6 per cent in 2016, with wide-ranging redundancy programmes in the private and public sectors, fuelled by the weak economy, weighing on buyer demand. However, in the commercial market, landlords are now starting to offer more flexible deals to attract occupiers.
The stability of rents in Abu Dhabi’s office market has given way to a widespread softening of rents. During Q4 2016, prime (AED 1,850 psm), secondary (AED 1,050 psm) and tertiary (AED 750 psm) rents all declined by AED 50 psm.
Cluttons’ research shows that the liquidity squeeze faced by the public sector as a result of the fall in oil revenues has resulted in the cancellation, or delay, of a multitude of high profile projects across Abu Dhabi. As a result, a number of businesses reliant on public sector spending are being forced out of the market, due to a lack of lucrative contracts, which is adding to the diminished number of enquiries and requirements.
“The city’s Grade A market, which had been relatively well insulated to the downturn previously, is beginning to show cracks, with rents in most prime buildings dipping back throughout 2016,” says Edward Carnegy, head of Cluttons Abu Dhabi. “Some landlords have begun to respond reactively to the softening conditions by increasingly offering rent free incentives and being open to negotiating headline rents, depending on the covenant strength of potential occupiers.”
The result is a market where occupiers have the chance to cherry pick from locations they might have previously been priced out of.
“With this in mind it is our view that rent corrections of between 5 per cent to 10 per cent are likely across the board by the end of 2017 and the market’s performance will remain hinged on the ability of the economy to shake off the drag generated by the low oil price environment,” says Cluttons.
The warehouse sector, however, is emerging as a “relative bastion of stability”, with headline rents across the city’s main industrial estates holding steady over the last six months.
Abu Dhabi rents expected to decline in 2017
28th February 2017
Abu Dhabi rents are expected to decline in 2017, according to one broker.
Rents, which were rising significantly in 2006, have since cooled down, with Cluttons reporting that they fell by an average of 9.4 per cent in the year to September 2016. Now, Asteco has forecast that rents will continue to decline this year.
According to the broker’s research, average rents for apartments fell 7 per cent in 2016, while villa rents fell 5 per cent. This was attributed to low oil prices weighing on the market, while 2017’s forecast is attributed to growing supply, with 4,000 new homes set to come on to the market.
Asteco also highlights mergers between companies, such as Mubadala with Ipic, as a factor.
“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, raising the potential for softening demand and therefore declines in market rates,” John Stevens, Asteco’s managing director, tells The National.
The report follows the introduction of a rental cap at the start of 2017.
Abu Dhabi introduces rent cap
4th January 2017
Abu Dhabi has reintroduced a cap on rental increases, a measure that experts expect will see rents stabilise in 2017.
The decision came as some surprise to the industry just before Christmas, with the Department for Municipal Affairs and Transport announcing that the law would be reinstated for the first time in three years. Indeed, the original measure was brought into effect in 2006, at a time when the rental market was seeing rates pushed up, due to a shortfall of supply amid a growing population. In the year to September 2016, though, rents fell by an average of 9.4 per cent, according to Cluttons, as demand weakened. The move to cap rising rents for existing tenants to a maximum of 5 per cent per year, therefore, was largely unexpected.
The cap, though, is broadly expected to help rents to stabilise.
“The recent introduction of the rent cap has had no impact on rents. Most landlords are focused on maintaining high occupancy, but are trying to hold the rents on renewals within a range of 0 to 5 per cent,” Vaibhav Sharma, the chief strategy officer at MPM Properties, the property division of Abu Dhabi Islamic Bank, told The National.
“I think possibly the effect of the reintroduction of the rent cap could be that rents start to stabilise,” added Andrea Menown, head of investment sales at broker LLJ.
Either way, with most renewals negotiated between tenants and landlords several months in advance, the effects of the cap will not be evident for buy-to-let investors until March 2017.
“At the moment we are seeing that it is the larger and more expensive properties which are seeing the biggest falls in rents,” she commented.
Abu Dhabi investors still earning up to 8.8pc
22nd August 2016
Abu Dhabi investors can still earn over 8 per cent on Abu Dhabi property, despite the weak market conditions.
Villa and apartment rental rates both dipped 2 per cent in Q2 2016, while apartment sales prices dropped 1 per cent, according to figures from Chestertons MENA. Nonetheless, investors are seeing stable investment yields of around 5 per cent gross, says the report, with top-performing property earning up to 8.8 per cent.
Declan McNaughton Managing Director UAE, Chestertons MENA, explains: “Although the market has flattened further in Q2 and witnessed declines as sales and rental rates dip further, rental yields are still rewarding investors and proving that the capital is still the place to be.
“Apartments in Al Reef Downtown, Al Ghadeer and Al Muneera all notched yields of 8.8 per cent, 7.7 per cent and 7.5 per cent respectively.”
“On average the residential rental market has dropped by 2% with the luxury end of the segment bearing downward pressure due to a reduction in spending, compounded by cuts to government spending due to lower oil prices. The remainder of the year will see marginal declines however solid yields will still prove popular with investors,” adds McNaughton.
Dubai real estate bottoms out, as international demand rises
16th August 2016
Dubai’s real estate market is bottoming out, according to new figures, as international demand continues to climb.
New figures from Dubizzle.com show that sales prices for the Jumeirah Beach Residence, Al Barsha and Jumeirah Village Circle all suffered a 3 per cent dip in sales prices in the second quarter of 2016, but that overall, there was no decrease in average price per square foot – a sign that the market is bottoming out.
Indeed, Dubai has been the subject of growing interest from overseas buyers, drawn to the emirate as its period of price moderation draws to a close. According to Dubizzle.com, the most searched-for communities among buyers were Dubai Marina, Jumeirah Lakes Towers and Jumeirah Village Circle.
Official data from the Dubai Land Department, meanwhile, highlights the growing demand from international investors, with total transactions in the first six months of 2016 rising to Dh57 billion.
Buyers from the GCC drove the increase, making up Dh22 bn of transactions (just over a quarter), but the emirate’s appeal is wide-reaching, with investors from 149 different nations all lining up to spend their cash. In total, foreign investment made up more than half of transactions by volume.
“The Dubai real estate market has managed to maintain its robust appeal this year,” Sultan Butti bin Merjen, the director general of the DLD, told The National. “It has been bolstered by the decline in some regional economies and serious challenges faced by other countries around the globe.”
Dubai property prices bottoming out
21st July 2016
Dubai property prices are showing signs of bottoming out, according to new figures.
Data from consultancy ValuStrat shows that after 12 months of relatively flat values, property prices are beginning to bottom out. During the second quarter of 2016, the ValuStrat index dipped 1.1 per cent year-on-year, but the monthly growth rate has been “broadly stable” since last summer, notes Zawya.
“For the second quarter of 2016, Dubai Land Department transaction volumes for the [areas we monitor] witnessed quarterly increases of 14 per cent for apartments and 7 per cent for villas,” Haider Tuaima, ValuStrat research manager, comments.
Indeed, the firm says sentiment is “cautiously optimistic” going forwards, with buyers and investors both reportedly completing deals on properties that are “well located and correctly priced”.
Dubai property stabilises in 2016
22nd June 2016
Dubai’s property market is showing signs of stabilisation this year.
The General REIDIN sale price index reports an annual drop of 9 per cent, but says that as of the middle of 2016, prices are relatively flat on a monthly basis.
The emirate’s prime market continued to outperform the market average in the year to April 2016. While the General REIDIN prime price index declined 5 per cent, values increased 2 per cent on a quarterly basis. The performance of prime apartments outweighed that of villas, with the index pointing to a 2 per cent quarterly increase over the same period.
Knight Frank attributes the steadying prices to a number of factors, from more careful control over supply, as developers phase out residential projects at a pace to meet demand, to strong liquidity, thanks to interest from markets such as Saudi Arabia and India.
“That has got to be something every developer has got to think about,” Nakheel’s Chief Commercial Officer, Aqil Kazim, told us in a recent interview.
“We deliver projects on a feasibility basis and it has got to be able to fulfil some kind of demand for us to launch it. There are reports out there talking about oversupply. I don’t know, I’m probably an optimist, but you’re looking at a city that has ambitious growth plans in term of resident population. Even if that growth was half achieved, we would be in short supply, not oversupply. We wouldn’t be building projects if it wouldn’t be fulfilling a certain demand.”
The World Expo 2020 is also boosting government spending on infrastructure, which is expected to help fuel development and confidence in the market in general, further attracting inward capital.
In Abu Dhabi, sale prices remained stable, supported by the lack of supply. According to the REIDIN index, prices rose 1 per cent year-on-year in Q1 2016.
“Looking ahead, the residential market in the UAE is expected to soften over the second half of the year,” forecasts Knight Frank. “While it’s difficult to predict when the next growth cycle will be, we expect the residential market to level out by the end of 2016 before seeing gradual recovery in 2017.”
What is the view of the market from inside the industry? Read our interview with Dubai developer Nakheel here.Google+