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The third quarter saw all property segments in Abu Dhabi — residential, office, retail and hospitality — positioning themselves favourably for the first time since 2008, according to property consultancy JLL.
Although the rate of growth was minimal in the third quarter, underperforming sectors were starting to recover, which is a good sign for the industry.
The factors that helped revive demand include government initiatives to improve the emirate's economy and infrastructure and new government policies such as registration of tenancies, abolition of the rental cap and control of the entry of new supply into the market.
''Government spending and economic development initiatives have returned since 2012, leading to employment growth and, therefore, increased housing demand, which is further supported by changes to policy,'' says David Dudley, Regional Director and Head of Abu Dhabi Office at JLL Middle East and North Africa. ''Annual supply is also reducing compared to previous levels, so vacancy rates have reduced and rents are rising again.''
Following the development boom of 2006-08, he says the government quite rightly slowed down its various spending initiatives, while it reassessed its priorities going forward and placed supply controls.
''These priorities are now clear with a major emphasis on tourism growth, other economic development initiatives, infrastructure and social development,'' says Dudley. ''These initiatives represent multibillion-dollar spending, which will ultimately boost property market demand across each sector.''
The residential segment has led the gradual rebound of the market, with the office sector being the final sector to turn the corner.
Similar to most countries in the Middle East, the residential sector is expected to remain Abu Dhabi's strongest-performing market.
The capital's housing demand received a boost from major corporate clients that signed bulk deals for staff accommodation. These clients are primarily from the medical, education and hospitality sectors. For example, Aldar Properties recently signed a deal with Cleveland Clinic Abu Dhabi to lease more than 600 apartments for staff accommodation.
Another factor that played a critical role in reviving the housing demand in Abu Dhabi is the government's move to control new supply in the market. This as the previous development boom delivered a large number of major mixed-use master developments, creating a vast amount of development land and potential development floor space relative to demand.
The government undertook several initiatives to reduce the potential supply through entities such as the Urban Planning Council. However, industry experts say there is a need to sustain efforts to control land release and planning consents to achieve a healthy balance between supply and demand.
According to JLL, over the past few years residential stock completions have typically averaged 10,000 units per year, as projects commenced during the boom years reached completion. From 2009-2012, demand was weak, resulting in a decline in rents and prices, followed by stabilisation.
Since last year, however, demand in the capital has increased quarter-on-quarter, with annual supply completions remaining relatively stable, leading to prime residential rents increasing by 17 per cent and prime residential sales prices increasing by 25 per cent (based on last year's performance).
Going forward, the JLL report states that annual supply completions will drop because of a smaller number of construction starts, as many developers remain cautious and a much higher proportion of these completions will be Emirati housing.
''With low supply completions at a time of strong demand, this will continue to push up residential rents and sales prices further,'' says Dudley. ''We expect the sales market to continue to grow over the next year, but at a lower pace of growth. Residential rents are also expected to grow, given rising demand and a relative shortage of quality product.''
Abu Dhabi's residential sales market has been witnessing a revival over the past six quarters with average prices in key investment locations growing by close to 22 per cent. According to the CBRE report, sales values increased by around 3 per cent in the third quarter, with rates now typically ranging from Dh13,725 to Dh17,760 per square metre.
Market observers say demand in the residential sales market has increased due to positive investor sentiment, the UAE's safe haven status and the time lag between the recovery of the property markets of Dubai and Abu Dhabi.
Better job security and sharp rental increases have also encouraged many expats to purchase their own homes. On average, apartment sales prices increased by 4 per cent quarter-on-quarter, and 29 per cent since the second quarter last year, while villa sales prices remained relatively stable over the same period, showing an average increase of just 2 per cent, according to Asteco's third-quarter real estate report. Average apartment rental rates ran in parallel with villas, recording modest second-quarter growth rates of up to 8 per cent.
''Ongoing tenant preference for newer, master planned communities drove demand for apartments in prime developments within investment areas, while affordable-villa locations continue to be popular,'' says Jerry Oates, General Manager — Abu Dhabi at Asteco.
He says market sustainability will be further buoyed by Abu Dhabi's plans to launch its own rental index, designed to create a more transparent market and regulate rental increases.
Abu Dhabi's office market finally bottomed out and is headed back into recovery, as vacancy rates decrease and rents increase. The capital's office rental rates recorded a 3 per cent quarter-on-quarter growth for Grade A fitted commercial space, whereas Grade B commercial rates remained stable for both fitted and shell and core.
''The office market leveled out in the mid- and high-end areas,'' says Oates. ''Grade A office space achieved estimated net effective rental rates of Dh1,700 per square metre for fully fitted space, an indication that rental rates have now bottomed out.''
Since there hasn't been major completions of projects during the quarter, Abu Dhabi's office stock remained steady at 3.66 million sq m.
''This provided the market with a cushion, maintaining stable vacancy rates, although with the development pipeline now starting to slow, we could be seeing improving occupancy rates for offices,'' says Mat Green, Head of Research and Consultancy — UAE at CBRE Middle East.
Analysts say the outlook is improving, but large-scale demand is going to be dominated by government entities and oil and gas occupiers. Since many of them are owner-occupiers who are not in the market for renting or purchasing speculative office space, the vacancy rates are expected to remain high.
Although private-sector requirements still tend to be smaller in scale, there are indications occupier demand is starting to increase based on the number and size of tenant requirements, leading to increased market absorption and reduced future vacancy.
''While prime rentals have stabilised, the future growth of the office market is very much dependent on government economic development initiatives to grow new demand and increase private-sector activity,'' says Dudley. ''Although there is significant vacancy in the market, there remains opportunity for business park office product.''
Private-sector activity seems to be increasing as there was a 14 per cent growth in the number of newly registered businesses last year compared to 2012. According to data from the Abu Dhabi Chamber of Commerce and Industry, the total number of new business licences reached 9,000, compared to just 6,900 during the preceding period.
''Since there have been significant improvements in infrastructure, retail, avail able services as well as a range of competitive rates and incentives, they have had a positive impact on demand for offices on Reem Island, particularly for both Sky Tower at Shams Abu Dhabi and Tamouh Tower at Marina Square,'' says Oates.
While demand has picked up, experts say there remains a market-wide oversupply and this will continue as new supply is added. However, new projects in the pipeline are reducing and a large proportion of near-term supply completions will be owner-occupied offices rather than rental property, which is prone to speculative activity.
Abu Dhabi's hospitality demand is also expected to be highly positive in the medium term, as the government's various initiatives to grow the tourism sector come through, resulting in major increases in annual visitor arrivals.
The positive increase in demand in recent years has to a large extent been offset by new supply coming through, impacting performance — with occupancies declining from above 80 per cent in 2006-07 to a low of 55 per cent in 2010 and now up again.
''The supply growth is now stabilising and tourism demand will go through a fundamental step change in the short to medium term as various initiatives come to fruition,'' says Dudley. ''Major initiatives undertaken by the government, such as the expansion of the Midfield Terminal and Etihad Airways, will have a positive impact on attracting more tourists to the capital.''
The delivery of new visitor attractions such as the museums on Saadiyat Island and retail and entertainment destinations on Yas Island, besides various major events hosted in the emirate, will further boost the tourism sector. This will be supplemented by global marketing initiatives, capture of stopover demand and extended length of stay.
The government's various initiatives to boost tourism have increased visitor arrival numbers and hotel demand and the increase in population and tourism has further improved retail spending in the emirate.
Over the past few years the government has also drafted new real estate laws (strata law, escrow law, regulation of presales, a new real estate regulator and mortgage law), which will ensure a better-regulated market and improve consumer and investor protection.
''They are expected to be implemented soon,'' says Dudley. ''In the meantime, leading master developers have put in place some of their own regulations and procedures to self-regulate their activities.''
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Source: Syed Ameen Kader, Special to Property Weekly