Rents continue to decline in Abu Dhabi

DUBAI - Apartment rentals in Abu Dhabi continued to decline by as much as 16 per cent in certain areas on oversupply of new inventory, Landmark Advisory said in a report released on Tuesday.

By Issac John

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Published: Wed 24 Nov 2010, 10:45 PM

Last updated: Mon 6 Apr 2015, 11:33 AM

“As expected, lease rates have continued to decline since our last lease guide in July 2010. This has impacted some areas more than others, particularly those where new supply is being delivered,” said Jesse Downs, Director of Research & Advisory, Landmark Advisory.

Average rents in the emirate declined five percent from July to November while rents for apartments in the cornice area suffered from the biggest declines of 15 per cent, Landmark Advisory said in its November Leasing Guide for Abu Dhabi.

“As quality-based competition increases from Dubai, Abu Dhabi rents will recalibrate around new, high quality developments in the capital, “said Landmark. The report identifies that the capital needs to compete on an infrastructural level with Dubai before people will show preference to living there. “Going forward, lease rates will need to compete with Dubai, as there is currently oversupply in that market, causing steep price declines, coupled with better quality than is available in the capital,” said the report.

The report cautioned that landlords need to be acutely aware of the market when considering how to price their units: “New developments such as Al Bandar and Marina Square have the potential to create competition for both the current Abu Dhabi market and the Dubai market. These new developments will upset the market, leading to a complete recalibration of rents around the new developments, which often offer better amenities and facilities,” said Downs.

“Rents in Abu Dhabi continue to be closely linked to rents in Dubai. New tenants in Abu Dhabi and existing tenants not protected by rental increases on their old contracts, are no longer prepared to accept sub-standard quality for premium prices leading to a significant decline in rents for those units,” said Landmark’s Abu Dhabi Branch Manager, Hesham Ikhwan.

“With rents continuing to fall in Dubai, rents in Abu Dhabi – especially for the lower quality on-island buildings – will need to decline further to continue to attract demand,” added

Downs. “Abu Dhabi faces additional challenges in retaining and attracting new demand to the capital, infrastructural issues, such as traffic, parking and schools, all need to be addressed to optimise demand.”

In terms of apartments, rental rates in Abu Dhabi have declined throughout with only few exceptions, with an overall average decline of five per cent. The biggest on-island declines were in the Corniche area, where rents fell by 16 per cent.

“Here, in particular, new supply has resulted in intense competition from those landlords looking to poach tenants from older buildings where the quality in no way matches the rent being charged,” explained Downs. “Those Landlords of older or poorer quality buildings, who now have vacancies, are being forced to lower their apartment rents significantly in order to attract demand,” said the report.

“Landlords are attracting new tenants by offering lower lease rates, longer term leases, and increased incentives such as rent free periods, fit-out allowances, and increased cheque options. Going forward, location and incentives are set to play a key role in attracting tenants within the commercial sector,” said Downs.

The report said off-island villas saw the largest decline of four per cent overall, with Al Reef villas predominantly suffering, experiencing a 15 per cent decline due to factors such as disappointing quality, inconvenient location and landlord competition. According to Landmark Advisory, the majority of landlords in this area are expatriates, meaning that they are more interested in continued cash flow rather than holding out for higher rents. In contrast, Golf Gardens witnessed a marginal increase, it said.

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