Rents in Abu Dhabi may continue to soften in next 6 months

Demand in Abu Dhabi's real estate market has weakened due to decline in household incomes and job cuts in both public and private sectors.

Residential rents in Abu Dhabi will continue to soften in the next six months but at a slower pace, according to a new research report released on Monday.

"There is a lot of shift happening. A lot of landlords are adjusting to new market conditions. We saw tenants shifting from city to outer areas in the last quarter of 2016 and first quarter of 2017. Therefore, now we find many landlords are more flexible, adjusting to lower rents," said David Godchaux, CEO of Core Savills.

During a telephonic interview with Khaleej Times, Godchaux revealed that there is now genuine demand for areas like Reem Island and Saadiyat Island as people start to believe in this market. The demand is not driven by drop in rentals but driven by people looking for better quality and lifestyle.

"The market is going to see plateau or relatively flat situation in the next 12 months. I don't see the market decreasing at the same rate as the last few quarters," he said.

Godchaux pointed out that demand in capital's real estate market weakened due to decline in household incomes and job cuts in both public and private sectors with the residential sales dropping in the range of four to 16 per cent in the last two quarter.

According to real estate consultancy CBRE, employment uncertainty and the rising cost of living are adding pressure on the residential leasing market in Abu Dhabi. Residents are now tightening their spending and gravitating towards affordable housing. In Q2 2017, average house rents in Abu Dhabi declined by nearly 11 per cent year on year and three per cent quarter on quarter, it added.

"Tenants have the upper hand to negotiate lower rents in both the residential and office sectors while slowly building up demand on the back of oil stabilisation and government spending. Although short-term recovery in real estate prices is unlikely, we expect the downward trend to slow down over the next 6-12 months - as the market softens, yet continues to strengthen its fundamentals," Godchaux added.

Core Savills expects the pace of price drops to slow down over the next six to 12 months as the market reaches a critical point with sales price bottoming at Dh1,150-1,250 and leasing prices at Dh70-75 per square foot.

The study revealed that that the prime market witnessed steeper softening, as occupiers favour affordability and investors face increasing challenges to lease high-end products. New supply, coupled with the rise in secondary stock coming to the market, are expected to exert further downward pressure on sales prices in the short term, although the mid-term prospective is not as dark as many say.

In the office segment, vacancy rate continued to increase across the market on the back of a weaker demand, particularly for office stock located in secondary areas.

- waheedabbas@khaleejtimes.com