Rents in low to mid-quality developments in the older residential districts of Abu Dhabi will continue to remain under pressure for the remainder of the year, as rental fell three to 14 per cent in the second quarter compared to first quarter, according to a new report.
The decline, fundamentally, was because renters in the capital took full advantage of increased real estate market supply and switched their existing accommodation for better quality one which were “more” affordable due to market supply and demand dynamics, Asteco said in its H1 2012 report.
“We expect the leasing market to remain very active in the second half of the year with demand being driven by a continuation of internal movement. This is expected to ﬁlter through all sub-sectors of the residential market, leading to further rental adjustments, particularly impacting mid-quality developments, which have previously commanded high rents due to a lack of competition,” the real estate consultancy said.
Elaine Jones, CEO, Asteco Property Management, said: “A total of 7,400 apartments and 1,675 villas were added to the city’s rapidly expanding real estate sector in the first half of the year, triggering a wave of internal movement as existing residents sought to upgrade to better quality and value for money accommodation.”
Asteco expects 11,560 units — 7,000 apartments and 4560 villas (170 per cent increase from quarter one) — to enter market in the second half 2012.
Major new areas of supply include Marina Square and Raha Beach, with a combined 3,638 new homes and a number of developments such as Rihan Heights coming on stream.
The “flight to quality” has led to clear segmentation, Asteco said, adding that older areas and buildings that previously commanded high rental rates and occupancies – such as the Tourist Club, Khalifa City A&B and Mussafah – are falling out of favour, with rates dropping between three and 14 per cent quarter-on-quarter.
Demand for premium quality developments with mixed-use facilities grew substantially, with a high level of leasing activity for top tier product including Etihad Towers, topping out at Dh150,000 for a one-bedroom apartment and St. Regis Residences achieving Dh261,000 for a three-bedroom unit.
“Tenants are willing to pay for high quality finishes and amenities and this particular trio of developments is representative of the new Abu Dhabi lifestyle, with waterfront living in a mixed-use setting, and the appeal of new community- focused developments,” said Jones.
Earlier this month, Emirates 24/7 reported that while in Dubai’s International and Academic City one could lease a studio apartment for Dh19,000 or less a year, no purpose-built studio apartments are available in Abu Dhabi in that price range. The only option, if commuting from Dubai is to be avoided, is to lease a conversion apartment in a villa for Dh24,000 to Dh36,000 per year.
Apartment sales rise
Increased residential sales transactions in H1 2012 were credited primarily to the completion of designated investment area projects and the availability of competitive mortgage interest rates and attractive selling prices.
Apartments in Shams Abu Dhabi, Marina Square and Raha Beach produced the highest volume of transactions, focused on smaller one and two-bedroom units. However most areas such as Shams Abu Dhabi, Al Raha Beach and Marina Square experienced an overall decline of around four per cent averaging Dh10,600 per square metre.
A four-bedroom villas at Al Raha Gardens dipped by seven per cent to Dh3.2 million quarter-on-quarter, while Al Reef increased in value by two per cent, fetching Dh1.3 to Dh2 million for three and five-bedroom units respectively.
“Investors have started to re-enter the market since rental return prospects have started to improve due to price reductions and more affordable mortgage options,” Jones said.
The commercial real estate sector enjoyed positive levels of transactional activity, again fuelled by internal movement.
“As landlords become more competitive, tenants who previously adopted a ‘wait and see’ attitude have increasingly begun to commit. There was also a substantial increase in enquiry levels as the new law requiring companies to operate from purpose-built offices came into effect and demand was led by fitted-out buildings with good parking ratios and competitive pricing,” the consultancy said.