The average rental rates in Abu Dhabi, UAE, for apartments and villas fell by seven per cent and five per cent respectively during 2016 and are expected to soften further in 2017, according to leading consultancy Asteco.

The decline will be exacerbated by new supply to the market. Approximately 1,400 residential units were handed over during 2016, and around 4,000 units – including 2,700 apartments and 1,360 villas - are expected to be handed over this year, stated Asteco in its latest Abu Dhabi Real Estate Report Q4 2016 report.

Average apartment rents fell by seven per cent over 2016, whilst prime and high-end apartments declined by six per cent and nine per cent respectively year-on-year.

The average annual rent of a high-end two-bedroom property on Abu Dhabi Island fell 10 per cent to Dh141,000 ($38,377) in 2016; and a two-bedroom apartment in Khalidya/Bateen dropped by as much as 13 per cent, on average, to Dh146,000 ($39,738), said the Asteco report.

Mid and lower-end apartments too experienced a five per cent drop, primarily during the second half of last year, it added.

“Although delays cannot be ruled out, this will definitely put pressure on rental rates for existing stock,” remarked John Stevens, the managing director of Asteco.

The continued macroeconomic uncertainty will also negatively affect rents as tenants search for more affordable rates, he noted.

Residential units that were previously able to maintain rental levels due to the reluctance of existing tenants to move, are now more likely to be affected as residents in search of the best value-for-money will become more frequent, said Stevens.

High profile corporate mergers in the pipeline are expected to lead to increased job uncertainty and could affect employee benefit packages, including housing allowances over the next few years, raising the potential for softening demand and therefore declines in market rates, he added.

Similar to apartments, villa rents declined by five per cent on average in 2016, with the greatest decrease witnessed in the Al Raha Beach area (10 per cent), said the Asteco report.

“Mature villas, which previously recorded high rental rates, have been affected the most, which resulted in an increase in vacancies in some communities,” said Stevens.

Average rents for villas on Saadiyat Island remained relatively stable over the year, which was mainly due to a large percentage of owner occupier properties.

Apartment sales prices, meanwhile, decreased by four per cent on average in 2016, with properties in Marina Square and The Gate both experiencing average drops of Dh125 per sq ft. Apartments in Raha Beach/Al Bandar and Reef Downtown both saw average price increases of Dh50 per sq ft compared to 2015 figures.

In terms of average villa sales prices, there was an average 4 per cent decline during 2016. Villas in Raha Gardens fell by Dh65 per sq ft and Golf Gardens by Dh60 per sq ft on average. Saadiyat Beach Villas (Standard) held their value year-on-year.

Stevens said the anticipated delivery of new residential projects is expected to increase investment opportunities, which in turn will have a positive effect on transaction volumes.

"Off-plan projects offering attractive sales rates and payment plans will continue to achieve good demand levels," he noted.

On the office sector, Asteco said the rental rates decreased on average by seven per cent year-on-year, with a notable slowdown in office take-up and upgrades, particularly for larger space requirements.

As a result, landlords countered by offering smaller units, lower rental rates and more flexible payment plans, it stated.

“Demand for large offices will remain subdued and landlords are expected to continue to subdivide space in order to entice new take-up,” remarked Stevens.

“New prime office projects are expected to be handed over in 2017, including Al Hilal Bank Headquarters and Abu Dhabi Islamic Bank Headquarters, which are likely to increase vacancy levels on the back of low demand,” he added.-TradeArabia News Service