Despite a noticeable rise in leasing activity during the first half of the year and record sales transactions, residential rental rates in Abu Dhabi have dropped four per cent during the quarter, said an industry expert.

“The rates are now down around 10 per cent over the last 12 months,” added Mat Green, head of Research & Consultancy UAE, CBRE Middle East, a leading international real estate consultancy.

“The completion of a significant number of new residential units from master planned locations is also encouraging widespread relocation within the capital, as tenants look to capitalise on prevailing affordability as they search for new and better quality housing options,” he said, commenting on the latest Abu Dhabi MarketView by CBRE.

The Abu Dhabi residential market is now seeing increased tenant activity arising from the decision to force Government employees to reside in Abu Dhabi in order to receive their housing contribution, the report said.

“The highest demand is currently for two-bedroom units, with rentals for upper middle and high-end focused accommodation, ranging from Dh90,000 ($24,500) to Dh145,000/unit/annum,” noted Green.

According to the MarketView, prime developments around Raha Beach and Saadiyat Island remain hotspots for luxury housing with two-bedroom apartment units at St. Regis ranging from Dh168,000–192,000/unit/annum whilst on the main island similar units at Etihad Towers now start from Dh135,000/unit/annum.

“Newly delivered residential developments such as Marasy Abu Dhabi and Nation Towers are commanding relative high rental rates, due to their superior quality finishes, waterfront views and wide ranging facility and amenity offers.  This trend reflects sustained demand for true high-end residential properties which offer tenants a real point of difference against existing inventory” added Green.

The commercial market has shown some very early signs of a revival, with an increase in leasing transactions and rising occupier interest.  However, this was not sufficient to stop the decline of average rents, according the MarketView.

Rental rates for Grade A commercial office space have remained static during the quarter, but down 5 per cent in annual terms. The average prime rental rate is now Dh1,750 per sq m per annum, although variation in headline rents are still noted dependent on the quality of the individual tenant, lease structure and incentive packages.

Secondary office rental rates in the capital continued to slide, falling nearly 3 per cent during the quarter to reach Dh1,215 per sq m per annum.

“The annual decline in secondary office rentals is now close to 10 per cent, widening the spread between prime and non-prime accommodation and reflecting a sustained trend of flight to quality. Abu Dhabi’s increasing supply and demand imbalance is prolonging the tenant-led market, encouraging city landlords to be more flexible with their terms and more generous in their incentive packages, particularly for long-term lease agreements,” added Green.

Abu Dhabi’s real estate market remains fragmented with sector performance varying by individual asset types and locations.

While the residential sector is expected to return to positive growth territory by the end of the year, with occupier and investor activity intensifying, a similar revival appears unlikely for the commercial office sector.  As a result, office rental rates are expected to see further declines, led by the weak performance of the secondary market.

“As the recovery gathers pace, we expect to see rising growth specifically for good quality properties within established masterplan communities and desirable locations on the main island,” concluded Green.

“Off-island secondary residential locations and inferior products without access to good transportation services or the benefit of a masterplan are expected to see further deflationary trends in the short term before the recovery becomes more broad based.” – TradeArabia News Service