The residential segment of Abu Dhabi remained relatively stable in terms of demand and supply during the first quarter of 2016, according to a report.

Due to a limited new supply that entered the market during the period (only 1,000 units), sale and rental prices on residential apartments and villas in the capital either remained stable or showed marginal decreases compared to Q4 2015, stated leading consultancy house PKF.

According to third party reports, the Q1 2016 residential sales segment in Abu Dhabi was characterised by low transaction volumes and stable sale prices.

As such, average sales rates remained similar to those achieved during the first quarter of 2015. However, areas that recorded significant decreases included: Al Bandar (eight per cent year on year) and Al Muneera (seven per cent y-o-y) in Al Raha Beach,

Both The Gate District on Reem Island and Al Ghadeer witnessed a seven per cent y-o-y fall in the sales rates, stated PKF in its report.

In terms of the rental market, apartments during the first quarter reported minor declines quarter-on-quarter (q-o-q) of between one and two per cent across most of the existing residential supply in Abu Dhabi.

However, when comparing the performance of the market in Q1 2016 to that of Q1 2015, minor growth patterns are noticeable, stated the PKF report.

Rental rates increased most significantly in budget living destinations, such as Al Ghadeer and Al Reef Downtown (11 per cent y-o-y). Rents in other locations such as Al Raha Beach and Reem Island recorded annual increases of between two and four per cent for the period.

Villa rental rates in Abu Dhabi recorded a two per cent q-o-q decline in Q1 2016, with Saadiyat Island still commanding the highest rates in the capital, it added.

New supply that entered the market during Q1 included The Wave on Reem Island (229 units), C39 at Danat Abu Dhabi (219 units) and Ali & Sons building at Rawdat (120 units).

Most of the upcoming supply in 2016 is expected to be concentrated on Reem Island (1,500 units), which is anticipated to put pressure on rents achieved in that area for the short- to mid-term, said the report.

In January, Arabtec won a contract worth Dh2 billion ($544 million) from Aldar Properties to build 1,017 villas on Yas Island. The project was intended to start construction works immediately. The project, once completed, will have a built-up area (BUA) of 440,000 sq m.

As part of a national housing strategy, Abu Dhabi Municipality started handing over 1,400 homes to Emiratis in March. Abu Dhabi City Municipality reports to place Emirati families' interests as the top priority when developing projects.

On the retail sector, PKF said no new developments entered the Abu Dhabi market during Q1 thus maintaining the retail GLA at approximately 2.6 million sq m.

A few retail developments within bigger mixed-use developments are set to be completed by end of 2016, however, mega retail projects are scheduled only for delivery in 2018-2019, when Al Maryah Central and Reem Mall are expected to be completed, which will add close to 340,000 sq m of new retail space to the market, it stated.

During Q1 2016, retail revenues remained under pressure with the trend for the remainder of the year indicating further reduction in consumer spending leading to further downward pressure on revenues.

In the short-term, a declining trend in retail spending is likely due to a weakening job market, reduced consumer confidence and lower spending power from residents thereby forcing retail tenants to renegotiate lease renewals with mall management with a focus on reduced rental rates, said the report.

Notwithstanding, the medium to long term outlook for the retail sector in Abu Dhabi is expected to grow on the back of high levels of disposable income and an increase in tourist arrivals. This pushes for the potential upgrading of the retail sector with newer and lareger regional shopping centres continuing to take over from the existing older stock, it added.

On the office sector, PKF said the demand continued to soften throughout Q1 as the government sector cut back on spending in response to the weakening hydrocarbon sector resulting in tenants in this sector delaying expansion or relocation plans.

However, some tenants in other commercial sectors opted to relocate to address and reduce capital expenses.

Despite an overall slowdown in the sector, the limited new supply counter balanced a negative impact on demand for the sector, which resulted in minor rental growths; more specifically within the Grade A office space as the supply in this segment continued to be limited, it stated.

According to a third party report, average rental rates for Grade A office space during Q1 stood at Dh1,900 sq m, representing a y-o-y growth of seven per cent.

During the same period, Grade B office space achieved rental rates of approximately Dh1,200 ($326) per sq m resulting in a y-o-y growth rate of five per cent.-TradeArabia News Service