There continues to be a distinction between high grade and low grade products within Abu Dhabi’s property sector, with market recovery occurring for prime real estate as performance of lower grade stock continues to decline, a report said.

Overall, real estate markets remain in over-supply, with additional new supply still in the pipeline leading to further increases to market-wide vacancy rates, added the second quarter 2013 Abu Dhabi Market Overview report released by Jones Lang LaSalle (JLL), a leading real estate investment and advisory firm.

The report, which covers the office, residential, retail and hospitality market segments, highlighted that market recovery which commenced in Q1 has continued throughout Q2.

“The first half of 2013 has been encouraging for the recovery of Abu Dhabi’s real estate markets. Prime office and residential rents have stabilised. Retail and hospitality sectors saw improved performance, and prime residential prices continued to rise during Q2 2013,” said David Dudley, regional director and head of Abu Dhabi office at Jones Lang LaSalle.

During the first half of 2013, there has been an increased volume of residential sales transactions and price growth for prime product. Prime residential sales prices increased by 5 per cent during Q2, following an 8 per cent increase during the first quarter.

A key source of purchaser demand has been regional investors attracted by the UAE’s ‘safe haven’ status following political unrest in the wider region.

Other demand drivers include Abu Dhabi being at a time lag to market recovery in Dubai and, as government progresses its major economic development and city building initiatives, this has led to increased job stability and liquidity, the JLL report said.

During Q2 2013, prime residential rents remained stable, following 8 per cent growth during the first quarter. This can partly be attributed to the government regulations to reduce the level of commuting from Dubai, together with government economic development initiatives leading to further job growth.

In addition, as new residential districts within master-planned areas obtain better amenities and achieve critical mass, this is leading to rental premiums for higher quality product. Rents in secondary quality residential stock have continued to fall.

The overall office market remains over-supplied, pending further progress with government economic development initiatives to diversify the economy and generate new jobs. However, prime office rents have started to stabilize, with prime office rents having remained stable the last four quarters.

For the hospitality sector, the positive impact of increased visitor arrivals has been offset by the significant recent increases in hotel supply, according to the JLL report.

While occupancy levels increased by 8 per cent during the first five months of 2013 average daily rates have continued to remain under pressure, declining by 2 per cent. Due to the positive growth in occupancies, RevPAR levels in the Year to May 2013 have experienced an increase of nearly 11 per cent compared to the same period last year.

“While it is encouraging to see the market moving upwards again, it is important to note that these improvements do not represent a market-wide recovery, but relate to selected high quality developments – with performance continuing to diverge between high grade and low grade product,” Dudley said.

“However, this is certainly positive news for the market, indicating the first signs of recovery and a maturing market. The product that will perform the best is that which is functionally designed, well located, well managed and most aligned to end-user requirements,” he added.

“Over recent years the Government has made major moves to consolidate supply and re-prioritise its spending initiatives ahead of the next upswing.

“The medium term prospects for Abu Dhabi are therefore very strong: the Government remains committed to investing its substantial revenue surpluses into economic development and major city building initiatives which will continue to drive employment growth and real estate demand,” Dudley concluded. – TradeArabia News Service