Smaller apartments enjoy huge demand in Abu Dhabi

dubai - There is demand in the market, but value for money is the most important factor

Redundancies and cuts in staff housing allowances are weighing on rents of larger apartments and villas in Q3 in Abu Dhabi. Tenants are increasingly downgrading accommodation in the wake of economic uncertainty. Consequently, smaller apartments which offer more value for money are more in demand, says consultancy Asteco.

John Stevens, managing director, Asteco, said: "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, rents for larger and more expensive three- and four-bedroom duplexes and townhouses have fallen by 10 per cent since the last quarter, with a high percentage remaining vacant for over six months."

Villa rents were down, on average, by two per cent in Q3 from Q2. The highest drop was in Al Raha Gardens (six per cent) followed by Al Raha Beach Villas (four per cent). Demand for older villas inside Abu Dhabi city has also dampened with premium units most affected, with an average decline of 10 per cent since Q3 2015.

According to Asteco, Saadiyat Beach Villas were the only exception, with rents recording a seven per cent increase compared with Q3 2015.

"The ongoing redundancies across various industry sectors and the reduction of staff housing allowances continue to negatively affect demand in Abu Dhabi, with a number of tenants opting to downsize and/or move to more affordable developments," added Stevens.

Rents for prime apartments on Saadiyat Island remained stable in Q3, while other prime apartments recorded a one per cent decline in rents compared with Q2 2016, falling by an average of six per cent since Q3 2015. High-end units in the Corniche saw rates drop by nine per cent from Q3 2015.

Meanwhile, the rental gap for high-end apartments between Dubai and Abu Dhabi has 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 Dh20,000 per annum and this has narrowed to Dh10,000.

In the affordable and mid-range residential segments, Abu Dhabi's rates have reduced moderately, by Dh5,000 on average, since Q1 2016, whereas Dubai's rates were marginally down by Dh1,000.

In terms of apartment sales, there was a one per cent average decline during Q3, with projects at Al Raha Beach and Saadiyat Island, as well as Al Reef, recording sales price gains of three per cent to five per cent respectively compared with Q3 2015.

Villa sales remained quiet with a limited number of transactions mostly for completed units.

Office rents are currently at their lowest since the market peak in late 2008, with rates, on average, 72 per cent lower.

Stevens said: "Large corporate and government entities often form the main tenants of prime office space. With uncertain economic conditions and low oil prices, demand from these organisations has weakened considerably."

- deepthi@khaleejtimes.com