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Abu Dhabi’s residential market appeared to be dominated by a higher demand for rental rather than sales property during the first quarter, although a slowdown is expected as more supply enters the market. On the office side, demand remained relatively flat, with limited new supply.
According to a recent CBRE Abu Dhabi Real Estate Market Review report, overall residential leasing demand remained strong during the first quarter with rentals increasing by around 2 per cent from the previous quarter. The highest demand was for two-bedroom units. Along the same lines, JLL’s Q1 Abu Dhabi Real Estate Market Review Report puts residential rental growth at 4 per cent, following 11 per cent growth overall last year.
After achieving a 25 per cent growth last year, JLL said the residential sales market has been stable in the first quarter, with prices remaining constant, although the volume of transactions was slow due to a decline in investor sentiment following the drop in oil prices.
CBRE said housing and utilities were the biggest contributors to rising inflation in the emirate last year. Driven by higher prices, the inflation rate went up to more than 4 per cent in the first quarter.
With utility subsidies undergoing severe reductions owing to the UAE’s green economy objectives, residents saw a significant rise in their water and electricity consumption bills, with the escalating costs becoming a growing concern.
In the office sector, while average prime office rents pegged a marginal 3 per cent rise year-on-year — the first quarterly increase recorded since the first quarter last year — new demand continues to be sluggish owing to low oil prices and economic uncertainties, as observed by both CBRE and JLL. With limited completions during the first quarter, the marketwide vacancy rate for offices remained at 25 per cent.
Despite the low stock of Grade-A offices, rentals are expected to stabilise in the short term because of weak occupier demand. Both reports anticipate vacancy and rental rates to remain stable as new pipeline stock is largely seen as pre-committed and booked.
Average prime office rentals were recorded at Dh1,700-Dh2,200 per sq m for Grade-A offices, while Grade-B stock was in the Dh1,100-Dh1,400 range.
Reflecting a downward movement, CBRE reported that the secondary office market recorded a decline of 2 per cent quarter-on-quarter — a deflationary trend that underscores the prevailing imbalance of weak demand amid growing supply.
With few new projects being fed into the property value chain and a need by investors to see definitive conclusions on proposed real estate market regulations and legislation, the residential sales market is expected to remain stable in the short term. Prime offices will, however, continue to enjoy demand with further growth prospects owing to a dearth of new supply.
Source: Neha Kaul, Special to Property Weekly