UAE: Tenants increasingly move to higher quality buildings, push up rents in new properties

Tenants in the UAE are increasingly moving to better quality properties, pushing rents higher in new and Grade A buildings on the back of continued influx of high-net-worth individuals.

Rents in old and poor-quality buildings, on the other hand, are facing vacancy increase challenges, especially in the emirate of Sharjah.

Rents continued to rise last year in some areas in the country due to a shortage in units in the ultra-luxury category, as a large number of expatriates flocked to the country in the post-pandemic period. However, rents are now stabilising in following the major increase in the last couple of years.

Real estate consultancy Savills said leasing activity remained stable across Abu Dhabi. “However, the bulk of inquiry levels were observed from tenants moving to better-quality units.”

In the apartment category, rents in Saadiyat Island recorded the biggest increase of 36.8 per cent, followed by Al Reem Island (11.1 per cent) and Al Reef (3.3 per cent). Rents in Al Raha Beach remained steady. In the villas/townhouses segment, Saadiyat Island again topped with a 36.8 per cent jump in rents followed by Al Reef (7.7 per cent) and Al Raha Garden (6.9 per cent). Rents were steady in Hydra Village and Gold Gardens.

JLL, another real estate consultancy, had predicted delivery of 2,000 units in 2022 in the capital.

Savills expects a significant amount of residential supply in Sharjah that is expected to be handed over in 2023 and beyond.

“This is likely to have a negative impact on older properties in the secondary market going forward. Across good-quality Grade A assets, rental values are likely to remain largely stable. However, poor-quality older stocks will start witnessing an increase in vacancy levels and rental correction as tenants and end-users move to newer developments,” Savills analysts said in the 2023 report.

In Sharjah, Al Sharq, Al Qasimiya and Al Khan recorded the biggest increase in rentals year at 25 per cent, 22.2 per cent, and 16.7 per cent, respectively. While Al Majaz and Muweileh saw a 9.4 per cent increase in rents.

“There is a growing segregation between good quality high-end projects and the rest of the market. The high-end segment of the market has seen robust demand and occupancy levels are estimated to be more than 90 per cent. Due to the strong demand levels, good quality stocks command a premium over the rest of the market. Average rents for a 1-bed apartment would range between Dh35,000 to 40,000 per annum, whilst newer developments can command an additional premium of 20 per cent or more,” Savills said.

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