- Average residential rental prices saw a slight quarterly decline but maintained annual growth
- Average office rents witnessed a drop on quarterly basis
Dubai, 21 October, 2015 – The Q3 2015 Abu Dhabi MarketView by global real estate consultancy firm CBRE reveals that average residential market rentals whilst maintaining around 2-3% growth over the past quarters, saw a marginal decline of around 1% quarter on quarter, but maintained an annual growth rate of close to 8%.
The negative impact of the economic slowdown is evidently being felt in the Abu Dhabi residential market, with rents finally being checked after a series of quarterly rental growth, which stretched back to Q3 2013.
Mat Green, Head of Research and Consultancy UAE, CBRE Middle East said, “The market is showing some signs of fragmentation, with older and poorer quality apartments - particularly those in secondary locations - experiencing rental declines and these declines have dragged down the performance of the wider market.
“However, residential villas depict a contrasting trend, recording a small increase of <1% during Q3 2015. The limited supply, particularly within the main Abu Dhabi island, reinforced the steady performance of this segment.”
Amongst residential property types, smaller units such as studios and one-bedroom apartment units remain in strong demand. On average, annual rentals for upper middle and high-end properties ranged from AED60,000-105,000/unit/annum for studios and AED 85,000-150,000/unit/annum for one bedroom units.
In comparison, the rental prices for inferior housing units and those situated outside in tertiary locations ranged from AED30,000-50,000/unit/annum for studios and one bedrooms respectively. The price differentiation is attributed to a combination of factors including quality, location, facilities and the proximity and accessibility of residential schemes to key commercial and social centres.
“Higher income individuals and corporate occupiers continue to show a preference for master-planned developments, particularly established communities which offer residents access to facilities and services. As a result, prime developments across the capital have shown greater resilience to the emergence of more challenging market conditions during the quarter. This is reflected in the widening rental gap, as rentals for new leases remain unchanged from the previous quarter despite the prevailing market conditions,” added Green.
Whilst there are clearly some headwinds for the residential market, the low level of expected completions over the next three years will help provide a cushion against the ill effects of the declining commercial market and a slowdown in some other sectors of the economy which ultimately influences demand for housing. On average, the emirate will see around 8,500 new housing units per annum over the next three years, in contrast to the 11,000 units which have been completed annually over the past five years.
Whilst the sales market has been somewhat subdued in recent quarters, key investment locations, such as Raha Beach and Reem Island, have witnessed marginal growth in annual terms, with sales rates increasing by 1-2% (y-o-y), with average rates ranging from AED14,265 – 17,760/m2. Prices for more affordable masterplan developments, such as Al Reef and Hydra Village, have remained unchanged during the quarter at AED8,500 12,375/m2.
According to the MarketView, the local office market is starting to feel the strain of lower oil prices with declining demand and rentals. With the oil and gas and public sectors serving as the primary office demand generator, demand for office space from both new occupiers and expansion of existing end-users has started to slow. These conditions have also had a knock on effect on other parts of the office sector, including some professional service companies, such as law firms, which rely heavily on work from government and government-related institutions.
Average prime office rentals remained steady at around AED1,900/m2/annum, with shell and core units ranging between AED1,350–2,000/m2/annum, whilst CAT-A accommodation typically ranged from AED1,600– 2,200/m2/annum.
Green further commented, “Offices at Mubadala’s Abu Dhabi Global Market (ADGM) Square are the notable exception to these rents, with asking rates starting from AED 2,900/m2/annum. However, we understand that leasing activities are currently on hold whilst the ADGM Regulatory Authority finalises the licensing and operational regulations.
Whilst the wider market is expected to face further deflation of rental rates, the prime segment is anticipated to show greater resilience to prevailing conditions. With the majority of Grade-A office developments achieving high occupancy rates and with more limited stock overall, prime rents are expected to remain broadly stable in the short-term”.
Secondary markets and products are likely to see sustained downward rental pressure in the coming quarters. Weak demand, coupled with a glut of ageing and inferior office accommodation, has resulted in a further dip in rental performance, with inferior properties driving a 4% decline in the average office rental rate during the quarter, which now rests at AED 1,075/m2/annum.
Within the hospitality sector, according to data from STR Global, Abu Dhabi’s year-to-date occupancy rate (up to August 2015) is around 72%; which is marginally up on the same period last year when occupancy rates averaged close to 71%. There has also been a slight increase in the average ADR which was recorded at just under AED500/room/night.
According to the Abu Dhabi Tourism and Culture Authority (ADTCA), total guest arrivals into Abu Dhabi during the first half of 2015 reached close to two million, reflecting healthy growth of nearly 17% as compared to the same period last year, generating a total of 5,728,765 guest nights, 11% higher than 2014 figures. The positive impact of higher visitor numbers also translated into higher revenues, with hotels recording an 8% increase to AED3.346 billion. This was driven by 11% growth in room revenue and a smaller 1% increase in food and beverage revenue.
Commenting on the outlook of the market, Green said, “With on-going economic challenges brought about by a period of lower oil pricing, US dollar strength, and sustained global uncertainty, the outlook for Abu Dhabi’s real estate market is for a period of further deflation in the short term. We expect to see a fragmented marketplace, with more pronounced declines to be experienced in secondary locations and for inferior products. As a result, we forecast that prime developments in the office and residential sectors, will see steadier performances across rentals and occupancy rates, aided by the availability of limited available stock, both currently and within the future development pipeline.
“Whilst the hospitality market performance has been steady in recent quarters, there may still be some short term negative impacts to be felt as a result of declining demand from government and corporate activity. However, as yet the slowdown which has impacted Abu Dhabi’s commercial market, has not manifested itself in the form of negative ADR or occupancy growth.”