Abu Dhabi residential and office rents could come under further downward pressure next year as the volume of new supply is expected to increase, a report said.

Leasing activity, up significantly this year from 2010, is expected to remain strong next year, according to the latest H2 2011 report from leading property consultancy Asteco.

Abu Dhabi’s residential property sector stabilised in the fourth quarter as project handover delays limited the delivery of new supply, the report said.

“Following a sustained period of rental declines, we have seen some stabilisation over the last three months, particularly at the top end of the market due in part to a slowdown in transactional activity,” said Elaine Jones, CEO, adding that some tenants chose to renew leases in existing premises at lower rents and wait for new projects to become available.

“However, the delay in handover this year will only exacerbate the volume of new supply delivered in 2012, and consequently, rents will again come under further downward pressure,” Jones said.

In terms of new supply, some 6,680 apartments and 3,600 villas were handed over this year, far below forecasts due to the continued handover delays within the major projects.

The average yearly rent for a one-bedroom apartment on the Corniche in the fourth quarter was Dh95,000 ($25,862) while a two-bedroom apartment cost Dh152,500. Rents for one and two-bedroom apartments at Al Raha Beach were Dh112,500  and Dh152,500, respectively.

Low vacancy rates and stable rents for villas in the high end Golf Gardens development continued to attract tenants while the more affordable Al Reef development benefited from a lack of competing developments.

Sales prices for apartments and villas remained stagnant throughout 2011 due to limited supply ready for immediate occupation. Unaffordable prices have limited and discouraged demand from existing residents and potential buyers.

A four-bedroom villa in Al Raha Gardens in the fourth quarter cost between Dh1.9 million and Dh2.6 million while a four-bedroom villa in Al Reef Villas cost between Dh1.5 million and Dh1.6 million.

Leasing prices in the city’s office market fell during the year with some 455,750 sq m of new supply entering the market. Vacancy levels in older Grade B and C buildings rose as more tenants shifted to better quality, value-for-money buildings.

The number of completed transactions increased as firms previously operating from villas are having to relocate. Meanwhile falling rents along with increasing flexibility and better incentives from landlords encouraged more companies to commit to deals.

Leasing rates for offices are expected to further decline during 2012 with some 650,350 sq m of office space expected to enter the market. Actual office supply is expected to reach around 3.5 million sq m by the end of 2013, up from 1.8 million sq m in 2009. – TradeArabia News Service