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Demand for affordable housing options rises in Abu Dhabi

ABU DHABI - Drop in housing allowance puts strain on high-end market

 
Softening market conditions have led to an increased demand for affordable housing options in Abu Dhabi, real estate consultancy firm Cluttons said.
In a report on Abu Dhabi's property market, Cluttons observed that a downward readjustment of housing allowances among companies in the emirate is creating further strain on the higher end of the residential market and underscores the need to address the capital's lack of affordable housing options.
"The shrinking pool of high-end management level tenants in the oil and gas sector in particular, has meant rising void periods for properties at the higher end of the rental spectrum and increased demand for more affordable options," Cluttons said in its Abu Dhabi Spring 2016 Property Market Outlook report.
According to the report's findings, budgets continue to hover around Dh100,000 to Dh150,000 per annum at the lower end of the spectrum while average apartment rents stand at just over Dh160,000 per annum, rising to almost Dh270,000 per annum for villas, highlighting the affordability challenges faced by households.
The report noted that landlords are now increasingly aware of the challenging market conditions and have begun to explore ways in which to attract and retain tenants. "On Reem Island for example, not only are some landlords lowering rents, but some are demonstrating greater flexibility in payment terms, with some accepting payment in up to four cheques per annum, up from one to two previously," said the report.
"Despite the maturing attitude, the market's fundamentals remain frail, with tenant demand for high end stock not likely to stage a turnaround in the near term. Based on the prolonged period of oil price weakness, we now expect slightly stronger rent falls of up to 5% on average. That said, we expect areas perceived to be more affordable to continue to outperform the wider market," said Edward Carnegy, head of Cluttons Abu Dhabi.
The report shows that rents in more affordable submarkets such as Hydra Village will remain resilient and are likely to post modest rent rises of around two per cent to three per cent during 2016. This follows a similar pattern to the previous 12 months, during which Al Reef Villas (8.7 per cent) and Hydra Village (25.9 per cent) have been the city's star performers.
According to CBRE, affordable residences experienced modest rental growth of about two per cent in the first quarter of this year, offsetting a softening of rents in more expensive areas. "Abu Dhabi's housing market is showing signs of fragmentation as a softening market in higher-priced areas are contrasting with greater demand for more affordable homes," it said.
In its latest Abu Dhabi Marketview ahead of Cityscape Abu Dhabi, CBRE said lease rates in areas such as Corniche and Khalidiya remained high, with prime rentals for one-bedroom and two-bedroom units currently around Dh120,000 and Dh180,000, respectively.
Matthew Green, the UAE head of research and consulting for CBRE, said there was a "continued shortage of affordable homes in the capital", meaning that rental levels at the lower end of the market would continue to remain strong as more people seek out cheaper accommodation to mitigate increases in the cost of living.
Meanwhile, the value of villas across Abu Dhabi's residential investment submarkets fell by 1.4 per cent in the 12 months to the end of first quarter 2016, According to Cluttons. This decline pushed the average price of Abu Dhabi villas to approximately Dh1,250 psf. Apartment prices remained largely unchanged in first quarter but despite this there has been further compression in the annual growth rate, which has slipped to 0.8 per cent from 1.1 per cent at the end of 2015.
The Cluttons report shows that in the office market, office rents across Abu Dhabi have now begun to slip in more secondary and tertiary locations after a year of stability, while some previously resilient Grade A schemes have also begun to experience rent declines. Average Grade A rents remained unchanged at Dh2,000 psm in first quarter, while more secondary (Dh1,200 psm) and tertiary stock (Dh 800 psm) experienced average rent falls of Dh100 psm, marking the first decline in almost 18 months.
Despite the stability at the top end of the market, a handful of prominent Grade A developments registered downward rental movement during the first three months of 2016. For example, rents at World Trade Centre Tower were reduced by eight per cent," said Faisal Durrani, head of Research at Cluttons. "This reflects landlords' acceptance of the challenging operating environment and it is these landlords that are likely to be best placed when growth eventually returns."
"Positively, the limited availability of the Grade A office market in Abu Dhabi in comparison to Dubai has in part aided the market's ability to withstand the oil price shock and the ensuing slowdown in business activity; however as is the case with the residential sector, the atmosphere in the office market is increasingly cautious," he said.
According to the report, in addition to the ongoing trickle of completions, office space is also being returned to the market by oil and gas firms, which is fuelling a supply-demand imbalance. issacjohn@khaleejtimes.com