Government initiatives to stimulate job growth, fuelled in part by a knock-on effect from the Expo 2020 win, provided healthy demand across all asset classes in Abu Dhabi, UAE, said a report.

There has been a marked improvement in investor return and occupancy levels across all real estate asset classes, stated MPM Properties, the real estate consultancy arm of Abu Dhabi Islamic Bank (ADIB).

The latest quarterly report issued by MPM highlights value growth across all sectors of Abu Dhabi’s real estate market last year.

During the year, the Abu Dhabi residential sector saw the launch of the first off-plan projects for over six years, with Aldar launching three projects (Hadeel, Ansam and Nareel) totalling approximately Dh5 billion ($1.36 billion), and comprising over 900 units, stated the report.

TDIC launched its first residential development within the Cultural District (Mamsha Al Saadiyat) comprising 461 units.  All projects generated significant demand with all inventory released sold, and the expectation of new projects being launched during 2015, it added.

The ADIB property arm said the residential apartment values within the designated investment areas demonstrated strong capital appreciation during last year.

The research by MPM Properties shows capital value growth ranging from 11 to 35 per cent with an overall average increase of 21.6 per cent. Villa values also experienced strong growth ranging from five per cent to 30 per cent, with an overall average increase of 15 per cent, it stated.

In the fourth quarter of the year, the residential sales market witnessed a marked slowdown in transactions due to the widening gap between asking and offer prices, with sale prices showing no increases in the last three months, according to the report.

Data analysed by MPM showed that sales volumes during November and December had hit a 20-month low, impacted by the lower LTV (l ratio’s introduced by the UAE Central Bank.

The Abu Dhabi market continues to be dominated by individual investors, with sale prices increasing faster than rents, eroding yields which have dampened investor demand.

This trend will continue until sellers agree lower prices or rents rise to help investors achieve net yields within a range of 5.5 per cent to six per cent, said the report by MPM Properties.

Meanwhile, the residential leasing market saw significant activity during the course of 2014 following the removal of the rent cap in November 2013.

Despite concerns of potentially huge rental increases, MPM Properties data shows that the market is self-regulating with normal market forces of supply and demand allowing rental rates to be negotiated and fixed. This is healthy for the long-term growth of the sector, it stated.

In terms of the ADIB Rental Index, an increase of between zero per cent to five per cent continued to be the common trend in the fourth quarter of 2014.

During the fourth quarter, Zones A, B and C witnessed average rental growth of 7.5 per cent to 10 per cent as residential units with water views or access to facilities and amenities within these zones were in high demand.

Commenting on the findings, Paul Maisfield, MPM chief executive, said: "The current market is effectively a three-tier market."

“These mid-tier properties, which takes up most of our portfolio, are seeing a stability in rents with an average five per cent increase, reflecting the fact there is a ready supply of such properties and thus landlords are mindful not to push rents too high and risk occupancy levels falling,” observed Maisfield.

“At the top end of the residential market, there is a shortage in supply, and occupancy levels are high within the most popular developments and communities, and with the limited choice tenants now have rental increases of 15 to 20 per cent are common at lease renewal,” he stated.

“At the bottom end of the market with the older properties, there is also a shortage of supply which is pushing up rents and in percentage terms these have been hit the hardest,” noted Maisfield.

According to him, the major new project launches during the fourth quarter were Yas Mall (retail), Burj Mohammed Bin Rashid Tower (residential) and Courtyard by Marriott hotel (hospitality).

"In 2015, we will see multiple residential and commercial projects being completed on Al Reem Island, Corniche, Danet Abu Dhabi and Capital Center," he revealed.

On the future outlook, Maisfield said: "We expect the real estate market to continue to grow steadily during 2015 with anticipation that the market will witness the introduction of new real estate regulations."

"The launch of the Abu Dhabi Global Market Financial Free-zone; opening of the Louvre Museum and the ongoing infrastructure developments will help fuel demand for the residential and office sectors and support continued growth across the retail and hospitality sectors," he added.-TradeArabia News Service