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The realty sector in Abu Dhabi has seen improved performance with the number of leasing and transaction activities going up significantly in the past six months. The resurgence in demand, coupled with a limited supply of new units and strong investor confidence, has helped drive real estate growth in the capital.
Around 1,750 units were completed in Reem island, Danet Abu Dhabi and Al Reef during the second quarter, bringing the total stock to around 240,000 units according to JLL.
"Major factors spurring the demand in the rental market include job growth from government spending initiatives, major infrastructure and construction projects and the growth of state-owned enterprises," Craig Plumb, Head of Research - Middle East and North Africa at JLL, tells Property Weekly. He says other contributing factors are policy changes requiring government employees in the capital to live in Abu Dhabi and the reduced rental difference between Abu Dhabi and Dubai, as rents in prime areas of Dubai continue to increase.
Rental has increased in the residential sector over recent months but remain largely unchanged in the commercial and retail markets. The present recovery of the market is largely concentrated in the residential market, with rentals for high-quality assets in prime neighbourhoods particularly recording a marked upturn in the past six months.
"The average rent for a prime two-bedroom apartment has increased by 15 per cent over the past 12 months to around Dh150,000 per year," says Plumb. Companies are also expanding their presence in Abu Dhabi, which is creating demand for new housing. "'With the non-on sector expanding its share of the economy, we have noted a strong growth in the tourism education and healthcare sectors. This is translating into rapid population growth and demand for new property in Abu Dhabi, says William Neill, Director - Head of Abu Dhabi at Cluttons.
The recent removal of the rent cap has had a major impact on rents in secondary buildings, especially those with long-time tenants paying low rents.
''We welcome the introduction of a new, well-considered rental control mechanism to maintain the right balance between keeping Abu Dhabi cost-competitive and allowing landlords to achieve fair rents," says Plumb.
Neill agrees, pointing out that while the removal of the rental cap has helped low rent property achieve current market values during lease renewal, there have been a small number of cases of landlords taking advantage of the new rule to charge exorbitant rates.
"The residential market is expected to continue to see rental growth over the next 12 months," says Plumb. "Over the past few years, residential rentals in Abu Dhabi have been above those in Dubai. The rapid increase in rentals in Dubai over the past 12 months has change the situation, with average rents in Abu Dhabi now below those in Dubai.
"As the quality of the residential offering in Abu Dhabi continues to improve, rental rates have room to grow further over the second half of the year and into the next.
Abu Dhabi witnessed a growth in residential sales during the first half of the year compared to the same period last year. Highly sought freehold apartments saw the strongest market performance in the first quarter (6 per cent), with AI Reef Downtown (9 per cent) showing the greatest level of growth. In the villa market, AI Reef Villas (6 per cent) was the strongest-performing asset, primarily because of its relative affordability when compared to other submarkets, according to a Cluttons report.
Although the residential investment sector has started showing signs of recovery. Buyers remain cautious. Additionally, the change in the mortgage cap rule has had a significant impact on a purchaser's ability to acquire property especially for expats.
'The market has only recently seen new investment zone products, with Aldar releasing two projects, Yas island and AI Raha Beach," says Matthew Dadd, Partner - Abu Dhabi Commercial Leasing at Knight Frank. "Both these developments saw positive interest and take-up from the market. The Tourism Development and Investment Company [TDIC] has released one building at Saadiyat Beach Residences, which saw strong demand with limited supply.
"Future releases of well appointed housing should also witness similar take-up, albeit in smaller-sized or phased developments.”
TDIC's projects have been particularly attractive, receiving a great deal of interest from UAE nationals and expats to international investors.
"One example of this was when Mubadala Pramerica Real Estate Investors acquired three buildings in Saadiyat Beach Residences last year under a five-year leaseback agreement with TDIC,” says Ahmed AI Fahim, Executive Director of Marketing, Communications, Sales and Leasing at TDIC.
The average sales prices for apartments in the investment areas have increased 28 per cent year-on-year from the end of 2012, to reach an average of Dh17,300 per sqm, says Plumb.
Both Abu Dhabi and Dubai are also benefiting from the UAE's status as a safe haven, especially with the ongoing political unrest in other parts of the region. As job security returns in the capital and market confidence grows, some long-term Abu Dhabi residents will choose to purchase their own homes rather than stay in rented apartments or villas.
Major events happening in the UAE are also affecting the Abu Dhabi market.
"Improved market sentiment across the UAE following the World Expo 2020 announcement in November is also contributing to the rise in demand for property investment in Abu Dhabi," says Plumb.
While expatriates from the Gee. UK and Indian subcontinent take the lead among foreign investors, many Russians and Chinese are starting to invest in the Abu Dhabi property market, including those who have been priced out of Dubai's luxury market, Neill points out.
There has been a fall in the overall vacancy rate in the office market due to a significant uptake in the prime segment, with approximately 100,000 sq m of office space being absorbed in the past year. Office uptake in the first six months of this year was primarily driven by financial and oil and gas firms, as well as government and government-related entities, according to a recently released Knight Frank report.
Compared to the residential market, the commercial market remained subdued in the first half of the year.
"Grade A and Grade B office rents have remained unchanged in the second quarter, averaging Dhl,540 per sqm and Dh1.180 per sq m," says Plumb. "The vacancy rate is currently around 30 per cent and is expected to increase as further deliveries take place over the next two years.
According to a new research by Cluttons, the creation of the emirate's first financial free zone at Sowwah Square is viewed as a positive move for Abu Dhabi's office market. An internationally governed financial free zone is likely to aid in attracting larger international players to the market once the free zone is established officially.
This is expected to help the emirate's occupier base evolve further and give momentum to the sustainability of the organic economic growth now taking hold. In addition, a two-tiered prime market is also likely to emerge with Sowwah Square commanding higher rents than comparable Grade A space elsewhere in the emirate.
"The Abu Dhabi office market remains highly reliant on the government-backed new sectors of the economy and increasing private sector activity," says Plumb. "This is unlikely to generate large scale demand for private office projects in the short term. "Grade A rents are expected to remain stable in the short term, however, secondary rents are expected to decline further as supply increases. Tenants will continue to be in a strong negotiating position, and this is likely to strengthen as further deliveries take place this year."
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Source: Chiranti Sengupta, Features Writer