The residential property values across Abu Dhabi’s freehold market soared during the third quarter registering a 14.4 per cent growth over the same period last year on the back of a growing population and prompt project handovers, said a report.

However this reflects the performance of a small segment of the capital’s overall residential landscape. Capital value growth for villas was just shy of 20 per cent, while apartment values surged by 17.4 per cent during the third quarter, stated property expert Cluttons in its recent review on the UAE capital's real estate scenario.

The Abu Dhabi real estate sector in particular, has shown signs of a sustained path to recovery this year, with the freehold residential market expanding rapidly on the back of a growing population, coupled with project handovers, which have contributed to an upturn in overall freehold market activity, it stated.

High-end apartments on Reem Island and Al Raha Beach retained their position as the best performing segment of this market, with average capital values climbing 9.3 per cent to Dh1,266 psf, closely followed by Al Reef Downtown, where average prices rose by 8.7 per cent during third quarter  to Dh580 psf, stated Cluttons in its report.

Mid-range villas in Al Reef and Al Raha Gardens were the strongest performing villa segment, with values rising by 7.5 per cent to Dh740 psf. Buyer demand is being underpinned by a combination of factors.

The bottoming out of the market late last year has sparked the hunt for good deals, which is contributing to the upward pressure on values. In addition, Abu Dhabi’s skilled workforce is continuing to grow, with the construction, education, healthcare and hospitality sectors in particular, in expansionary mode, bolstering buyer requirements, it stated.

Furthermore, aside from demand borne out of the federal decree requiring all public sector workers residing in other emirates to relocate to Abu Dhabi by September 1, there is some degree of reverse migration from Dubai taking place, driven by the lower rents than achievable in comparable Dubai locations, the report added.

"In the lead up to the market peak, Abu Dhabi’s higher rents fuelled an exodus out of the emirate, but we may be approaching a tipping point that could also result in the return of some former non public sector Abu Dhabi residents," said Cluttons.

On the supply side of the equation, fresh stock continues to trickle on to the market and since much of the stock is privately owned, owners are capitalising on the rising demand by raising prices gradually, it noted.

"However, this does not appear to be denting buyer appetite, suggesting that there is still room for further price increases in Abu Dhabi’s freehold areas over the next few quarters, particularly as the delivery of previously stalled schemes encourages further vendor activity in the emirate’s small, but growing number of freehold submarkets," it added.

According to Cluttons, the Emirati capital’s lettings market has also experienced a turn around in the pace of rental value growth, with average rents rising by one per cent during the third quarter, following an increase of 4.5 per cent during  the second quarter.

Apartments continued to experience stronger uplifts than villas, with rents rising by 4.1 per cent and 0.7 per cent, respectively, in the third quarter. This does however mask the fact that two-bedroom villas in Hydra Village were this quarter’s best performing freehold residential assets, with rents rising by an average of 11.6 per cent, taking them to Dh80,000 ($21,777) per annum, from just under Dh72,000 per annum in  the second quarter, it said.

"Al Reef was the only freehold villa submarket to record negative rental value growth, with three-bedroom villas declining in annual rent by -2.4 per cent to Dh136,000. Anecdotal evidence suggests that as an established community, Al Reef is now lagging more modern villa developments in terms of both quality and on-site facilities and amenities, which is underpinning the slide in rents," the expert added.

According to Cluttons, the best performing freehold residential apartment assets were mid-range one-bedroom apartments on Al Raha Beach, where rents rose by 9.7 per cent in third quarter , leaving them at just over Dh113,000 per annum.

Al Raha Beach’s proximity to the Abu Dhabi – Dubai highway, Yas Island and Abu Dhabi International Airport have made it a sought after base, particularly for tenants that are legally required to reside in the emirate.

In addition to strong tenant demand, we continued to record high level of corporate lettings activity, which is further fuelling the rental value growth across Abu Dhabi’s freehold market.

"This is placing additional upward pressure on rents as large scale corporate requirements often result in the letting of entire buildings prior to market release. These bulk residential requirements from the hospitality sector continue to dominate the rental market and we have recorded demand for close to 2,500 apartments so far this year from this sector alone," said the property expert.

Reem Island, Golf Gardens and Al Fursan are proving to be popular target submarkets for this cohort, particularly as these areas are in very close proximity to Abu Dhabi island, it stated.

The Al Ghadeer community, which sits just off the E311 on the Abu Dhabi – Dubai border, is also enjoying a resurgence in demand, underpinned by its close proximity to Dubai and the relatively affordable rents.

These currently range from Dh30,000 to Dh40,000 per annum for studio apartments and rise to between Dh90,000 and Dh110,000 per annum for three, or four bedroom townhouses.

The buoyancy in the lettings market, although at a lower rate than being recorded across the border in Dubai, still remains above the pace of household income growth, which suggests that a period of more subdued growth may lie ahead.

Tenants remain exceptionally cost conscious and this evidenced by the surge in interest and subsequent deals we usually record once advertised rents are adjusted downwards to levels perceived to be the “sweet spot,” said the Cluttons report.

In addition to this, a large number of schemes that were severely delayed during the onset of the credit crunch are now slowly starting to trickle on to the market, with Tala Tower’s 375 apartments on Reem Island amongst the most recent batch of residential completions, it added.

On the other hand, the office market remains fairly subdued; however rents in pockets of the UAE capital’s office market appear to be stabilising.

There is also a growing interest in relocating to prime Grade A space to take advantage of rents that are perceived to offer greater value for money when compared to more secondary locations across Abu Dhabi, said the expert.

On the retail sector, Cluttons said the activity remained muted during the third quarter. "Although, older shopping malls, such as Al Wahda Mall, continue to buck the trend, with retailers showing a keen interest in securing a presence in established malls, set in well populated residential neighbourhoods.

However, this does mask the fact that even in these shopping centres, minor downward rent reductions are being offered to existing tenants as mall landlords seek to maintain occupancy levels. In some instances, these discounts are up to a third below the prevailing market rates.
Landlords appear to be taking a proactive approach to tenant retention in the face of the projected 600,000 sq m of mall retail space expected to be delivered to the market between 2014 and 2017, said the report.

Outside the shopping malls, retail branches of local banks top the list of most active tenants in the market, with space of between 250 sqm to 350 sqm being sought widely. “Grade A stock remains in relatively short supply and this is helping to keep rents steady at the top end of the market,” it added.-TradeArabia News Service