Residential rents for apartments in Abu Dhabi have seen a moderate rental growth as supply and demand move towards equilibrium, said a report.

Overall, capital values for completed apartments have remained broadly stable, driven by low transaction volumes, as both buyers and sellers remain unwilling to enter the market, according to MPM Properties, the real estate advisory subsidiary of Abu Dhabi Islamic Bank (ADIB).

During the first quarter, approximately 1,000 new homes were delivered to the Abu Dhabi market, comprising predominantly small to medium-sized developments in Al Nayhan, Muroor Road and Mohammed Bin Zayed City, stated the report by MPM Properties.

Across the villa segment, weak demand resulted in limited sales in most communities. Developers are countering market sentiment by offering attractive payment plans on off plan residential sales to spur demand.

An analysis of the MPM portfolio in Abu Dhabi shows that 38 per cent of lease renewals completed during the first quarter of this year were agreed at a zero per cent increase, 61 per cent achieved a modest increase and only one per cent had a rent reduction.

Paul Maisfield, the chief executive of MPM Properties, said: "We are seeing a shift in market dynamics as the first quarter of this year has seen a constrained new supply of homes coming into the market with the residential market expected to see less than two per cent housing stock growth in 2016 compared to an average of 4.5 per cent per annum over the last seven years."

"The slowdown in new supply will counter some of the downward pressure on rents, although a marginal correction is expected in the months ahead," noted Maisfield.

Demand for office space in Abu Dhabi, which is driven mainly by the government sector, has reduced as corporations cut spending and put expansion and relocation plans on hold.

The report forecasts 350,000 sq m of new office space, mainly in the form of owner occupied space, being added to the commercial stock by the end of 2016.

The majority of the speculative space entering the market in 2016 is at City of Lights on Reem Island, with the remaining floors at Addax Tower being handed over in this quarter, and in Omega Tower which is due to be completed later in the year.

Bucking the general office market trend, and now effectively operating as its own micro-market, is the Financial Free Zone on Al Maryah Island. Mubadala has released Al Sarab and Al Khatem Towers at ADGM Square which together extend to 98,000 sq m of Grade A space, said Maisfield.

Retail sector saw no new supply coming to the market, but retail revenues have come under pressure in the first quarter of the year as consumer spending in the emirate softened, according to MPM Properties' report.

This trend is expected to continue throughout 2016 but reverse in 2017, as a rebound in oil prices and the expected launch of new government projects leads a pick-up in consumer confidence, it stated.

On the hospitality sector, the report said there was an addition of approximately 210 hotel rooms during Q1. Key projects scheduled for completion this year include the Four Seasons, Marriott, Grand Millennium Bab Al Qasr Hotel, and the Emirates Pearl hotel.

The opening of the Louvre on Saadiyat Island later this year and the $1-billion Warner Brothers theme park on Yas Island in 2018 will drive tourism growth over the next few years, it added.-TradeArabia News Service