Residential sale prices in Abu Dhabi declined by around one per cent in the first quarter of 2018 and by five per cent from the same period in 2017, as secondary market transactions suffered from suppressed investor sentiment, a report said.

Abu Dhabi’s residential market continues to experience deflationary pressures driven by weak demand fundamentals and the cautionary approach of many occupiers, due to the uncertain employment environment, added the market analysis from CBRE, a commercial real estate services and in-vestment firm.

“In the leasing market, average residential rentals have also continued to fall.  However, positively the rate of decline is now lower than has been evident for much of the last three years.  On a comparative year-on-year basis, rentals in the capital have dropped by around 10 per cent, but the quarterly change was around 1.6 per cent,” said Matthew Green, head of Research and Consulting at CBRE.

Key takeaways:

Residential

Despite the general downward trend in average rental rates, the emirate’s housing performance has remained somewhat mixed, depicted by a range of declines between one to five per cent during the year period.

Despite the more challenging economic environment, Abu Dhabi’s residential sector continued to witness an active off-plan sales market, led by a series of launches from the local developer Aldar.  In 2017, Aldar is estimated to have launched close to 1,900 homes, of which 83 per cent of the units were sold by the end of the year.

Mayan, the luxury golf facing development of Aldar on Yas Island is understood to have been more than 80 per cent sold with a significant number of units purchased by UAE institutional investors.

Strong sales were also evident in the positive sales achieved by The Bridges on Reem Island and Waters Edge and West Yas developments on Yas Island.

By end 2020, the level of new supply in Abu Dhabi looks to be consistent, averaging just over 8,250 units per annum, and totalling roughly 25,000 units.

A report from the Statistics Centre Abu Dhabi (SCAD) has indicated a 7 per cent annual increase in the volume of foreign direct investment in Abu Dhabi during 2017.  Sales of properties accounted for roughly 28 per cent, and were the highest contributory segment to the total FDI. Construction and building activities also grew by around 14 per cent during same period.

Hospitality

During 2017, Abu Dhabi welcomed around 4.9 million visitors, reflecting over 10 per cent growth over 2016 figures. This number is expected to expand at an even faster pace during 2018, with the Abu Dhabi’s Department of Culture and Tourism (DCT) forecasting annual visitor numbers of over 5.5 million.

The opening of The Louvre Abu Dhabi, along with the other leisure attractions on Yas Island, has helped to expand the Emirate’s tourism offerings to both domestic and foreign visitors.

The total number of hotel guests for the month of February reached around 358,400, which translated into a 16 per cent annual increase from last year’s 308,000 hotel guests.

The average hotel occupancy in Abu Dhabi reached 81 per cent in February, roughly 3 per cent higher from same period in 2017.

Despite the increase in guests and occupancy rates, RevPAR’s fell by close to 21 per cent, reaching to Dh286 ($77.8)/room February 2018, driven by a 23 per cent decline in ADR’s, which dropped to Dh354/room/night, as compared to circa Dh460/room/night in February 2017.

Rising hotel inventory levels and stiff competition amongst hotel properties continues to weaken the overall revenue performance.

Assuming minimal levels of delay, the total room inventory in Abu Dhabi is estimated to reach circa 37,000 keys by the end of 2020.

Offices

Abu Dhabi’s commercial office market remains in a contraction phase, with take-up levels suppressed by the lack of leasing activity from the Public Sector and Oil and Gas occupiers, which form the backbone of demand in the Emir-ate.

Average prime office rentals now measure around Dh1,615/per sq m/annum, having declined 8 per cent from Dh1,750/per sq m/annum for the same period in 2017.  The outlook for offices remains somewhat bleak, with further downside to rentals and occupancy expected during 2018.

Secondary office rentals now average Dh800/per sq m/annum, roughly 15 per cent lower than the achieved rentals during the first quarter of 2017.

It is now a heavily tenant led market, with occupiers benefitting from a wide array of options, with landlords willing to offer much more flexibility in their leasing terms to secure tenancies and reduce the risk of long term vacancy rates.

As the market has softened, the pace of construction has slowed, with delays in building completion and actual handover of properties aiding the situation, offsetting the negative impacts of weaker demand and avoiding further aggravation of rental levels.  

Future supply levels have also declined, with limited new office projects being launched over the past five years, reflects the market’s challenges. In total circa 0.5 million sq m of new office space could enter the Abu Dhabi office market during 2018 - 2020, assuming minimal delays.

Retail

Just like other asset types, the retail sector is feeling the pinch of weaker demand levels as consumers have become more prudent with their spending (both from rising cost of living and impacts of VAT).

Despite the overall weaker market sentiment, major malls continue to enjoy comparatively strong occupancy and rental levels.

During the quarter, prime rents for typical line shops (mall-based) ranged between Dh2,500 – 3,200 per sq m per annum whilst similar units within off-island locations had rents between Dh2,000 – 3,200per sq m per annum.

Although, rental ranges remain wide, average rentals decline by around 8 per cent year-on-year, with more severe declines for secondary and tertiary locations.

With retail inventory levels expanding, mall operators are now becoming more open to negotiating with tenants and have become more generous with incentives and contract terms.

Analysis of the on-going development pipeline indicates that circa 0.29 million sq m of new retail GLA is expected to be handed over in the Abu Dhabi market during 2018 – 2020. Over the next three years, total retail development is expected to reach close to 1.9 million sq m GLA. This will reflect roughly 18 per cent of the existing organized retail stock.

Overall Market Outlook

Both commercial and residential leasing markets are expected to follow similar downward trajectories as the previous year, as new supply places further pressures on rentals and occupancy rates.

However, the hospitality sector is likely to see an improving outlook, as guest nights and occupancies continue to rise.  However, average room rates and overall revenues are expected to face further downside risk.

As competition tightens, further drops in average room rates are to be expected as hotels target domestic tourists with attractive promotions and discount packages.  – TradeArabia News Service