Abu Dhabi residential realty rebounds as rents jump 16%

A rebound in Abu Dhabi’s residential market, marked by an average of 16 per cent surge in rents in 2013, is expected to give a new impetus to the level of investment activity in the sector, real estate consultancy CBRE said on Tuesday.

Around 40,000 new residential units are forecast for delivery in the capital city over the next three years, the latest Abu Dhabi MarketView by CBRE said.

The strongest rental growth was recorded during the final quarter when rates rose by as much as nine per cent, the report said.

Rental increases were highest for one-bedroom units that jumped 11 per cent during the quarter.

The real estate consultancy said residential sector in the capital returned to growth during 2013, albeit in highly fragmented fashion. “The recovery is expected to gather further momentum over the next 12 months, as the impact of the recent rent cap removal is felt in earnest,” the report said.

Mat Green, head of research and consultancy UAE at CBRE Middle East, said the move comes at a time when housing demand was already on the rise, following the earlier Government intervention to change the conditions under which state run companies paid housing benefits to their employees.

“Despite Abu Dhabi’s impressive return to growth, the market remains polarised in its performance, with significant variation found between the emirates key residential locations and by the age of the specific property. With a large portion of the capitals housing stock now quite dated in appearance, there has been widespread tenant migration towards new developments upon completion, which in turn has resulted in sustained rental deflation for many older units,” said Green.

The rental gap between properties located “off-island” and those “on-island” remains firmly intact with apartments in off-island locations 44 per cent cheaper than those on the main island, the report noted. The average annual rental for a two-bedroom apartment unit off-island is now Dh66,500/unit/annum. This compares with Dh115,000/unit/annum on island.

“While rental growth appears to be a new reality for the majority of residential tenants, the high volume of expected new supply may at least help to curb some of these inflationary pressures, although again this is likely to be location specific and dependent on the local market fundamentals. Over the next three years, roughly 40,000 new residential units are forecast for delivery across the capital with close to 45 per cent to be completed on Reem Island alone,” said Green.

On the outlook of the residential market, Green said an increase in the level of residential investment activity, particularly within established master plan locations, is expected. “This in turn may lead to an increase in the number of new construction starts as we move through 2014, after what has been a relatively quiet period for the new development launches.”

The Abu Dhabi office market, on the other hand, witnessed a relatively quiet quarter, with only the sustained activity from the public sector helping to maintain the markets forward momentum, notes the CBRE report. This was reflected by a quarter of flat rental growth, with both prime and secondary rentals remaining static.

“While enquiry levels for prime office accommodations have been positive over the past 12 months, the typical small size of these requirements and the low number of completed transactions perhaps reflects the private sector demand dynamic at this time. However, we expect to see a rise in occupier activity once the Al Maryah Island free zone becomes a reality,” said Green.

Average prime rentals for Grade A commercial office spaces remained stable at Dh1,850/sqm/annum, although variation in headline rents were still evident, dependent on the quality of the individual tenant, lease structure and incentive packages. Secondary office rental rates also remained steady at Dh1,200/sqm/annum, although further rental deflation is expected during 2014 as new good quality developments are completed, and as the current flight to quality continues.

“It is hoped that the positive economic growth forecast for 2014 will also provide much needed stimulus for an improvement in the commercial office sector. However, any recovery is likely to be constrained by the large volume of new office supply that will be delivered during the course of the year,” said Green.

In tandem with rent hikes, property prices also surged in Abu Dhabi in 2013, Jones Lang LaSalle said in a report.

Over the year, prices went up by up to 25 per cent. In the final quarter of 2013 alone, prices rose six per cent but the increases were not seen across the whole market.

Prime residential rents increased on average by 17 per cent during the past year and by eight per cent in the last quarter, the report said.

Another report by property portal dubizzle said Abu Dhabi property prices surged as much as 37 per cent in some districts in 2013 amid a shortage of mid-sized family homes in the capital.

The report also found rental prices increase by up to 18 per cent in some areas.

In its latest 2013 price trends report, dubizzle said that the biggest increase in property prices in Abu Dhabi last year was for three-bedroom apartments and villas.

• issacjohn@khaleejtimes.com