Abu Dhabi’s real estate market is seen nearing the bottom as the UAE economy prepares for stronger growth in 2018 with the gross domestic product (GDP) likely to expand by 2.6 per cent, according to an industry expert.

While the first quarter of 2018 has recorded a slowing rate of capital value declines across the UAE, developers of high-end homes in Abu Dhabi appear to be sensing a bottoming of the market and are pressing ahead with new schemes, stated international real estate consultancy Cluttons.

The very top of Abu Dhabi’s sales market has been relatively positive, and is showing signs of stabilising, said Cluttons in its 'Abu Dhabi Property Market Outlook' report for Spring 2018.

Sea-facing villas on Saadiyat Island, for instance, which remain the most expensive residential property type in the capital at Dh1,700 ($463) per sq ft, have seen no movement in prices for two consecutive quarters, it added.

Faisal Durrani, the head of research at Cluttons, said: "2018 looks set to be a better year for the UAE economy as a whole, with GDP expected to expand by 2.6 per cent, from a seven year low growth rate of 1.7 per cent last year. This is, in turn, expected to help support more stable rates of job creation and increased government spending as confidence levels improve."

“In fact, following the announcement by Adnoc at the end of last year to spend Dh400 billion over the next five years to boost growth, we expect to see further infrastructure project announcements this year as the government moves to bolster economic growth,” noted Durrani.

Edward Carnegy, the head of Cluttons Abu Dhabi, said this trend was likely to help tempt buyers back into the market especially as the stability is likely to persist.

"In fact, we have noted a marginal uptick in demand from Emirati buyers predominantly, looking for second homes, or expanding their buy-to-let investment portfolios on Saadiyat Island," remarked Carnegy.

"Interestingly, of the 13 submarkets we monitor in Abu Dhabi, sea view villas on Saadiyat Island have experienced the biggest price correction since 2015, with prices dropping by an average of 26.1 per cent,” he added.

Rents across Abu Dhabi’s residential investment areas decreased by 2.3 per cent during the first quarter, following the 4.3 per cent drop during the final quarter of 2017.

The latest change leaves rents 11.5 per cent lower than this time last year, said the Cluttons in its report.

The falling rents, it stated, are reflective of the lingering weakness in overall requirement levels.

Tenants are wary of the threat of job losses and the rising cost of living, associated with the introduction of VAT and a general upward creep in inflation, which has left many household budgets under tremendous pressure, it added.

Carnegy said as a result, tenants are negotiating reductions at renewal, while landlords are increasingly receptive to meeting the expectations of tenants by agreeing to close deals below headline asking rates.

"They are offering flexible rental payments in multiple cheques to attract tenants as well as other incentives such as zero commission payable and rent free," he noted.

According to Cluttons, Abu Dhabi’s residential market has the potential to start stabilising by the end of 2018, but until then further softening is expected to persist.

The additional declines will be catalysed by rising levels of property handovers in locations such as Yas Island and Al Raha Beach by Aldar, which will curtail chances for a quicker recovery, stated the property expert.

"We expect a decline of a further 5 to 7 per cent for both residential rents and values during 2018, largely as supply and demand will likely remain out of kilter for a while yet," stated Durrani.

"Positively, bulk corporate leases are back on the agenda for some firms as they move to secure better lease terms, or indeed better quality accommodation for staff, while also making a saving," he added.

On the office sector, Cluttons said like the emirate’s residential market, this was also facing the pressures of firms that were downsizing or consolidating operations; a trend that began over two years ago.

"While rents across the city’s prime office buildings held steady during Q1, deals continue to be concluded below headline asking rates in many cases. In secondary and tertiary buildings, rates have dropped by as much as 30 to 50 per cent over the same period.

"In some cases, rents in tertiary buildings have fallen to nearly the same level as prime warehouses," remarked Carnegy.

"However, these substantial drops do not accurately reflect market conditions and are a result of landlords holding out on rent reductions for extended periods of time, before being forced to make drastic adjustments due to increased vacancy as they chase the market down," he noted.

“We are aware of a number of instances where landlords are now also willing to cover agency fees. This is a seismic change in behaviour as up to 60 or 70 per cent of landlords are now willing to do this, compared to almost none a few years ago. In addition to this, many are also willing to offer increased parking provisions, increased rent free periods, shorter leases with increased flexibility,” he added.-TradeArabia News Service