Abu Dhabi’s residential space becoming fragmented

Abu Dhabi’s residential market is recording some serious fragmentation, with low-quality apartment buildings in secondary locations experiencing rental declines. In these instances, rentals have been averaging between Dh30,000-Dh50,000 for studios and one-bedroom units, according to the latest update from CBRE.

But at the higher end of the rental spectrum, premium to very high-end units are fetching landlords between Dh60,000-Dh105,000 for studios and Dh85,000-Dh150,000 for the one-beds.

“After maintaining around 2-3 per cent growth over the past quarters, average market rentals saw a marginal decline if around 1 per cent quarter-on-quarter, but still maintained an annual growth rate of close to 8 per cent,” CBRE report notes.

According to Mat Green, head of Research and Consultancy UAE, CBRE Middle East: “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.”

Drop in completed units

But the respite from rental gains, however slight, could be temporary. A drop is expected in the level of completed housing units, which will ratchet up the pressure on the rental side of things.

“The low level of expected completions over the next three years will help to 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,” the report adds.

Based on current estimates, Abu Dhabi will see 8,500 new residences getting completed in each of the next three years as against the average of 11,000 a year during the last five years.

On the sale side, key locations such as Raha Beach and Reem Island had “marginal growth in annual terms”, with rates increasing by 1-2 per cent (year-on-year). Average values range from Dh14,265–Dh17,760 a square metre. Prices for more affordable masterplan developments, such as Al Reef and Hydra Village, have remained unchanged during the quarter at Dh8,500-Dh12,375 a square metre.

But the overall market will have to factor in the strong headwinds blowing across the economy. There is the cut in the UAE Government’s public expenditure levels — the first in 13 years. Earlier in the year, the Abu Dhabi Distribution Co also cut subsidies on utilities and this was followed up by the removal of oil subsidies.

“With 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 further deflation in the short-term,” the report says.

Source: Manoj Nair Associate Editor, gulfnews.com


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