Abu Dhabi’s real estate market is well placed to weather the economic downturn as government-backed real estate organisations are well funded and have the capacity to rationalise, phase or delay developments, said a report.

Abu Dhabi is performing well in comparison to regional and global counterparts across all asset classes, DTZ, the real estate advisory firm, said in its market report on Abu Dhabi giving detailed insight into the city’s real estate sector.

As per the report, Abu Dhabi’s office market is set to remain undersupplied for the next 3 to 5 years.

'Despite this, it has experienced a decline in both rental and sales prices in recent months and this trend is set to continue in 2009 before prices stabilise in 2010.' Philip Gray, UAE country manager of DTZ said.

However, the city’s office market is set to outperform its regional peers and will overtake Dubai to become the most expensive office location in the GCC by 2010, he added.

Office rental rates in Abu Dhabi have declined from the highs of Dh4,500 per sq m per annum, achieved in prime locations in 2008, to current annual rental rates of between Dh3,200 and Dh3,000 per sq m per annum.

 The highest annual rental rates are currently being commanded by schemes on Corniche Street which average Dh3,200 per sq m per annum, while rents on Khalifa and Hamdan Streets currently command an average of between Dh2,850 and Dh3,000 per sq m per annum, the DTZ said in the report.

Office sales prices in Abu Dhabi have declined from the highs of over Dh2,300 per sq ft achieved in prime locations in 2008 to current rates of Dh1,800 per sq ft. This is due to substantively reduced levels of liquidity combined with a decreased appetite for real estate as an investment class.

The report goes on to outline that the proportion of Grade A office stock will grow significantly in the Abu Dhabi metropolitan area as the forecast development pipeline is delivered to the market.

The majority of this new office space will come from master planned schemes such as Al Suwwah; Al Reem; Saadiyat Island and Al Raha Beach which will shrink the current undersupply of office space considerably over the next 3 to 5 years taking the GLA from 1.3 million sq m – as of the first quarter in 2009 - to 2.7 m sq m GLA by 2014.

Martin Cooper, DTZ’s head of Consulting and Research said: “Looking ahead, the key trends that will play out in Abu Dhabi’s office market include a flight to quality as new Grade A office space is delivered to market; the release of informal office stock (such as villas and apartments) back to the residential sector as occupiers trade up; and an increasing emphasis on car parking provision as parking restrictions come into force on the island.”

The residential market has experienced similar decline – despite a current undersupply of 44,000 residential units in the Abu Dhabi metropolitan area.

DTZ predicted that the rental prices for apartments will decline slightly (up to 5 per cent) this year, with a more marked decline for villas (up to 10 per cent) as increasing volumes of stock are delivered through schemes such as Khalifa A, Al Reef and Mohammed Bin Zayed City.

The average rental prices for apartments in Abu Dhabi ranged between Dh138,000 for a one-bed unit, Dh198,000 for a 2 bed unit and Dh252,000 for a three bed unit.

The prime rental rates for apartments in areas such as the Corniche, and to a lesser degree the Tourist Club Area, stood at Dh160,000 (one-bed); Dh265,000 (two-bed) and Dh330,000 (three-bed).

In the first quarter of 2009, the average villa rental rates stood at Dh335,000 for a 3-bed unit, Dh394,000 for a 4-bed unit and Dh472,000 for a 5-bed unit, Cooper pointed out.

The prime locations such as Al Bateen, Al Manaseer and Al Khalidiya continue to command a premium, with 3-bed, 4-bed and 5-bed villas annual rental prices at Dh375,0