The residential sales market in Abu Dhabi, UAE, remained largely muted during the first quarter, with the weak appetite for property purchases, in line with overall market sentiment, according to a report.

Affordable residences continue to generate solid demand and with it modest rental growth, in some cases up to two per cent, stated the  global real estate consultancy firm CBRE in its Q1 2016 Abu Dhabi MarketView.

This resulted in no change in the average market rental rate, which has remained stable. Conversely, larger apartment units and some premium properties in the capital are now experiencing softening rentals, he noted.

“Lease rates in areas such as Corniche and Khalidiya remained high with prime rentals for one- and two-bedroom units currently around Dh120,000 ($32,662) and Dh180,000 ($48,994) respectively.  Residential accommodation within central locations remained the most popular option for smaller household sizes and single occupants, primarily due to the ease of access to transportation networks and proximity to a variety of social facilities and commercial establishments,” said Mat Green, the head of research and consulting UAE, CBRE Middle East.

"With a continued shortage of affordable homes in the capital, rental levels for lower priced residences will remain strong, with the residential market gravitating towards value amidst sustained growth in the cost of living," stated Green.

According to the report, there was no major change in average residential prices, which remained broadly stable for the quarter.  

“Al Raha Beach and Reem Island remain popular investment locations with typical sales rates ranging from Dh14,265 to Dh17,760 sq m. Al Reef and Hydra Village, which serve as more costsensitive locations, had prices ranging between Dh8,500 and Dh12,375 sq m,” added Green.

When looking at the office market, demand for smaller office spaces remains relatively buoyant, reflecting the emergence of greater price sensitivity.

During the quarter, average prime office rentals remained steady at around Dh1,900 per sq m per annum, with shell-and-core units broadly ranging between Dh1,350 to 2,000 sq m per annum, whilst Category A accommodation generally ranges from Dh1,600 to 2,200 sq m.  

“As a result of the weaker fundamentals, occupiers have become a little more cautious with their approach to capital expenditures, and even to their overall business approach, with the decision-making process for new office moves noticeably increasing in recent quarters.  However, at the same time, landlords are starting to demonstrate a greater willingness to negotiate with tenants, including on rental discounts and increased rent-free periods,” stated Green.

Whilst overall demand levels are down, the market continues to see a flight to quality, with better specification buildings and those well operated by good quality property management teams viewed to have a greater resilience during a downtown, as compared to similar properties of lesser quality.

According to Green, the non-oil sector is set to become an increasingly important component of the overall economy amidst a sustained period of market uncertainties and heightened risks.

"However, with oil prices anticipated to remain low, we expect the remainder of 2016 to follow similar patterns to the first quarter, with the market characterised by weakening demand and increasing supply.   As a result, further rental deflation is to be expected," he added.-TradeArabia News Service