Rents have continued to decline across Abu Dhabi, according to the November Leasing Guide for the city released by Landmark Advisory.

“As expected, lease rates have continued to decline since our last lease guide in July 2010. This has impacted some areas more than others, particularly those where new supply is being delivered,” explained Jesse Downs, director of Research & Advisory, Landmark Advisory.

“Going forward, lease rates will need to compete with Dubai, as there is currently oversupply in that market, causing steep price declines, coupled with better quality than is available in the capital.”

Landmark Advisory recommends that landlords need to be acutely aware of the market when considering how to price their units. “New developments such as Al Bandar and Marina Square have the potential to create competition for both the current Abu Dhabi market and the Dubai market. These new developments will upset the market, leading to a complete recalibration of rents around the new developments, which often offer better amenities and facilities,” said Downs.

The report identifies that the capital needs to compete on an infrastructural level with Dubai before people will show preference to living there.

“Rents in Abu Dhabi continue to be closely linked to rents in Dubai. New tenants in Abu Dhabi and existing tenants not protected by rental increases on their old contracts, are no longer prepared to accept sub-standard quality for premium prices leading to a significant decline in rents for those units,” added Landmark’s Abu Dhabi branch manager Hesham Ikhwan.

“With rents continuing to fall in Dubai, rents in Abu Dhabi – especially for the lower quality on-island buildings – will need to decline further to continue to attract demand,” added Downs.

“Abu Dhabi faces additional challenges in retaining and attracting new demand to the capital, infrastructural issues, such as traffic, parking and schools, all need to be addressed to optimise demand.”

In terms of apartments, rental rates in Abu Dhabi have declined throughout with only few exceptions, with an overall average decline of 5 per cent.The biggest on-island declines were in the Corniche area, where rents fell by 16 per cent.

“Here, in particular, new supply has resulted in intense competition from those landlords looking to poach tenants from older buildings where the quality in no way matches the rent being charged,” explained Downs.

“Those Landlords of older or poorer quality buildings, who now have vacancies, are being forced to lower their apartment rents significantly in order to attract demand.”

The November report found that as a result of the new supply being delivered, tenants are no longer willing to pay Abu Dhabi premiums for low quality units. This has been exacerbated by new higher quality off-island supply and continued rent declines in Dubai, as people show a willingness to commute.

“The handover of Al Bandar, and imminent delivery of other off-island supply such as Marina Square, will only deteriorate on-island apartment rents, especially those of lower quality. These new communities should generate demand once handovers are completed as the fit out and community integration of the developments is significantly superior to the vast majority of on-island supply,” said Downs.

Turning to villas, off-island villas saw the largest decline of 4 per cent overall, with Al Reef villas predominantly suffering, experiencing a 15 per cent decline due to factors such as disappointing quality, inconvenient location and landlord competition. According to Landmark Advisory, the majority of landlords in this area are expatriates, meaning that they are more interested in continued cash flow rather than holding out for higher rents. In contrast, Golf Gardens witnessed a marginal increase.

“This is symptomatic of the problems landlords of off-island properties face,” explained Downs.

“Being located off-island means they are more susceptible to commuter demand and there is very little demand for some of the larger off-island villas. The cost of renting a large villa is prohibitively expensive for many. However, those who can afford these large villas are now spoilt by choice in Dubai and most would rather do the additional commute from Dubai to enjoy a higher quality lifestyle, as well as higher quality units for comparable or cheaper rents. As such, demand for large off-island villas is very limited.”

The latest guide found that commercial rents have fallen 6 per cent since June 2010, however this was exacerbated by an extreme 23 per cent decline on-island. According to Landmark Advisory, the majority of companies prefer to remain in their existing offices while they wait for further price reductions and higher quality supply.

“Landlords are attracting new tenants by offering lower lease rates, longer term leases, and increased incentives such as rent free periods, fit-out allowances, and increased cheque options. Going forward, location and incentives are set to play a key role in attracting tenants within the commercial sector,” concluded Downs.-TradeArabia News Service