The new rental law is not likely to significantly impact rent levels in Abu Dhabi in the short term, but over time, it will help to bring down rents, said a report.

Landmark Advisory, one of the leading real estate consultancy companies in the Middle East, has issued its March lease guide for the Abu Dhabi market.

Compiled in collaboration with LLJ Property, a leading real estate agency in Abu Dhabi, the guide shows further rental declines in the capital.

Landmark Advisory anticipates that rent declines in the UAE capital will remain closely linked to new supply entering the market.

“Even before the change in the rent law, we predicted that lease rates in the capital would gradually decrease in 2010,” said Jesse Downs, director of research and advisory services, Landmark Advisory.

“We do anticipate an adjustment phase during which asked rents are expected to remain static, we maintain that actual rents will continue to decline,” she added.

The report found that after decreasing on average 10-15 per cent during the last quarter of 2009, apartment rents in the capital have continued on a negative trajectory with an additional decline of 5-10 per cent.

“Low quality apartments declined an average of 5 per cent during January and February,” explained Andrea Menown, leasing manager, LLJ Property.

“Although low quality apartments in many areas have not experienced rent changes, similar units in select areas, such as Muroor and the Tourist Club Area, declined up to 20-per cent.”

Rents in off-island communities like Khalifa City and the Mussafah area have been more buoyant than on-island communities such as Muroor or City Centre.

According to Landmark, this is because off-island communities had already experienced significant rental declines in previous quarters and rents are now very affordable.

In terms of villas, rents are continuing to adjust, the report said.

Following an average rent decline of 10-15 per cent in Q4-09, average rents declined another 5 per cent during the first two months of 2010.

“While on-island villa rents seem more resilient, off-island villa rents declined 5-10 per cent in communities like Al Reef, Golf Gardens and Khalifa City A,” continued Menown.

“As more supply enters the market, from both newly completed supply and recently vacated units, landlords will need to bring their rents down in order to remain competitive,” Downs said.

“We expect an adjustment phase while landlords bring their expectations in line with market fundamentals.”

“This phase will start in Q4-10 and Q1-11 when the new law will take effect. At this time more of the newly developed supply will be readily available throughout Abu Dhabi and specifically in the freehold areas like Al Reem Island and Al Raha Beach,” Downs said.

Despite relative rent stability in Q4-09, commercial rents declined an average of 10 per cent in January and February with areas such as Al Nahyan Camp, City Centre and the Corniche experiencing rent declines of up to 20 per cent.

In Q4-09, average rents in Abu Dhabi were around Dh2,100 ($572) per sq m, but these have since fallen to Dh1,900 per sq m.

“Office demand remains focused on smaller units, as companies in the capital remain extremely price conscious and do not want to commit to large office spaces. The majority of demand for large office space is linked to government bodies or government-related companies,” concluded Downs. – TradeArabia News Service