The UAE’s property market experienced improved stability during the first six months (H1) of 2014, with the rate of expansion steadying and the slowing down of growth in residential rents and values in Abu Dhabi, Dubai and Sharjah, a report said.

However, backed by a robust economy and a stable real estate sector, the outlook for the UAE remains extremely positive for the remainder of 2014, added the annual 2014 UAE Property Report released by Cluttons, a major real estate services firm.

Cluttons’ data reveals that Abu Dhabi’s freehold market recorded an 11.4 per cent rise in capital values in the second quarter (Q2), leaving them 48 per cent above the same time last year.

The latest rise translates into a 19 per cent increase in average house prices during the first six months of the year, with the removal of the rent cap helping in part to fuel buyer demand. In the rental market, Cluttons expects affordability to remain central to the rental value growth equation, with rises likely to slow further in the coming months.

In Dubai, house prices have increased by 0.6 per cent during the second quarter of this year, with villa prices declining by 1.6 per cent and apartment values increasing by 2.3 per cent. This takes price growth for the first six months of the year to 3.8 per cent and reflects the widespread stabilisation of the market.

The lettings market has continued to eke out marginal growth, with the city’s freehold areas recording a 1.4 per cent rise during Q2, taking total growth during H1 to just under three per cent. In real terms, the rental value growth has been relatively flat, after inflation (2.7 per cent) over the same period is factored in. Despite this, average rents remain 8.4 per cent ahead of Q2 2013.

Affordable rents in Sharjah continue to entice Dubai-based employees back to the emirate, while a limited supply pipeline has helped to drive up rents during the second quarter by 5.7 per cent, following the 10.8 per cent rise recorded in Q1.

In addition, Cluttons notes a rise in the number of businesses from Dubai seeking out bulk staff housing in the emirate. With rental demand remaining high for villas, and supply levels remaining low, rents continue to edge upwards. At the Al Barashi Villa Compound for instance, Cluttons has recorded a consistently high level of enquiries, with average rents for a three-bedroom detached villa, standing at Dh110,000 ($29,940) per annum.

Steve Morgan, chief executive at Cluttons Middle East, said: “The UAE’s economy has continued to mature and evolve, with the IMF predicting 4.4 per cent annual growth this year. We see this as an indication of further sustainable growth driven by resilient core sectors, which continue to expand on the back of robust, widespread rises in business activity.”

“The real estate market has been a powerful driver behind the strong economic growth and although residential values and rents in Abu Dhabi, Dubai and Sharjah are showing signs of stabilising, we expect other segments of the economy to compensate for the slower growth rates in the real estate market.

“It is important to note that although values and rents may be stabilising to an extent, they are still maintaining a positive growth trajectory and we expect this to persist, which will in turn deliver the sustainability we have been anticipating. The careful implementation of measures at a federal and emirate level has been exceptionally successful in transforming the residential markets; this is particularly true in Dubai, where growth is now tracking a much more sustainable course as the market matures further,” he added.

Office market

The report indicates that the gap recorded between Grade A and secondary office space in the Abu Dhabi market during Q1 2014 now appears to be narrowing. In addition, a new super-prime benchmark has begun to emerge, which is likely to see rents move ahead of current prevailing Grade A rates.

Etihad Towers is now widely seen as the UAE capital’s most desirable office address and super prime benchmark, with occupancy levels reflecting this, standing at over 90 per cent. Rents here are likely to be amongst the first to be driven up by the persistent demand and are expected to move past the current circa Dh2,000 ($544) per sq m rate.

The report also reveals that the gap between Grade A and more secondary space in Dubai is also narrowing, underpinned by the near saturation of desirable office addresses. Occupiers have had no choice but to opt for more secondary space in some cases, which has helped to drive rents up by 4.8 per cent in this portion of the market.

Separately, the gradual turn around in the office market’s performance has also caught the attention of institutional investors, with a rise in the number of high profile deals being recorded across the city during H1.

According to Cluttons, the supply-demand equilibrium should have, by this stage in Sharjah’s office market cycle, driven rents higher than current levels, but a range of factors have held back growth. Stubborn landlords, who were reluctant to lower rates during the downturn are in part to blame as there have been instances where they have begun to undermine the market by offering to accept rents below the prevailing market levels.

 “With a maturing real estate market, world class infrastructure and a high standard of living that has fostered a truly international population, the UAE’s emergence as a global business hub is encouraging international firms to set up offices across the country. This has had a direct impact on the demand for residential and office space across the Emirates,” Morgan said.

“In addition, the robust economic expansion, coupled with globally significant events such as the Expo 2020 and mega infrastructure projects such as Al Maktoum Airport and Etihad Rail are all expected to fuel the next wave of development of the national real estate market,” he concluded. – TradeArabia News Service