The sales and rental rates in Abu Dhabi's residential sector remained relatively flat during the third quarter of 2015, but the office market in the UAE capital was steady through out the period, said a report.

Despite rental rates experiencing an increase of eight per cent year on year (y-o-y) during the third quarter, the rental rates on a quarter-to-quarter (q-o-q) basis marginally declined by approximately one per cent indicating a slowdown in the residential market as the nation’s economic growth softens in the light of lower oil revenues and reduced government spending, according to leading consultancy PKF.

Notwithstanding, the rental market is still likely to achieve a single digit growth by the end of 2015, following double digit growth rates in the previous two years, it stated.

Residential sales prices in Abu Dhabi remained stable, however the number of transactions continued to decline during the period due to weakened investor’s confidence.

Nevertheless, no major developments were completed in the third quarter and the low level of upcoming supply over the next few years is expected to dampen the impact of a potential declining market trend, it added.

According to PKF, the future demand in the Abu Dhabi residential market is likely to succumb to increased pressure with reduced government spending, job cuts and the increase in cost of living as Abu Dhabi government announced plans in early 2015 to cut subsidies on utilities.

Furthermore, to tackle the lack of affordable housing in Abu Dhabi, a new policy that sets forward affordable housing targets for developers in Abu Dhabi is being formalised, however the full details are yet to be finalised.

Its introduction would likely provide easier access into the residential market, said the top consultancy.

On the office scenario, PKF said the Abu Dhabi market remained steady, however the demand in the sector was likely to face increased pressure in the short term as the hydrocarbon sector, one of the primary tenants in the sector, continues to contract.

Brent crude oil prices per barrel in the third quarter of 2015 have more than halved from the same period in 2014.

Despite market demand indicators experiencing pressure, the limited supply of Grade A office space is likely to resist current market conditions as a small number of buildings recorded a rental growth of approximately 10 per cent y-o-y and continue to achieve low vacancy rates, stated the report.

However, Grade B office space indicators are expected to come under increased pressure as additional supply in this segment comes online in the short term during a period of weaker demand.

Furthermore, Abu Dhabi's financial free zone, the Global Market Square (ADGM) continues to achieve the city's highest rental rates, however activity in this location remains subdued as the ADGM Regulatory Authority continued to formalise the final rules and regulations for financial services, said PKF in its report.

Once publicised, leasing activity for office space on Al Maryah Island will improve, it added.-TradeArabia News Service