The recovery in the real estate market is more robust in Dubai than in Abu Dhabi where the market is still favourable for tenant with prices and rents continuing to decline, according to a new report.
Dubai is ahead of the curve as rents are finally starting to pick up while Abu Dhabi has yet to bottom out.
In terms of sectors, retail remains a driving force with significant opportunities in both emirates.
Alan Robertson, CEO of Jones Lang LaSalle, Middle East & North Africa, said in a statement: “Market sentiment is definitely improving and both Dubai and Abu Dhabi remain major drivers in the regional real estate market, but we are continuing to move away from one holistic model.
“As the market continues to mature we will see more divergence. Well managed, high-quality assets in prime locations will continue to perform while those in secondary locations will need to be ever more creative to attract and retain tenants,” he said.
Robertson expects the market to move away from a construction-led environment to one more focussed on asset management as owners look to safeguard their investment and drive rental growth.
Craig Plumb, Head of Research for Jones Lang LaSalle in Mena, adds: “While the Dubai market is certainly starting to recover, this improvement remains largely focused on a limited number of high quality assets/locations, and has yet to trickle down to the overall market where rents and values have remained largely unchanged during 2012.”
The overall UAE market still faces challenges of high new supply and limited demand for secondary assets, which is providing tenants and occupiers with significant choices.
Villas outperform apartments
The residential market in Dubai has recorded another positive quarter as the villa market continued to outperform the apartment sector in the third quarter.
Although prime residential buildings in well-established locations saw improved performance, secondary locations suffered from rental and pricing declines because tenants relocated to new high-quality projects.
Around 6,000 new units were completed in the first nine months of 2012. Another 17,000 units had previously been expected to come to the market before the end of the year, but it is likely that much of this supply will be delayed until next year.
Also, a number of previously stalled projects are now being revived, such as the Mudon project in Dubailand as demand is picking up and liquidity returning to the market.
JLL anticipates the main completions from 2012 to 2014 will be in Jumeirah Village (approx. 6,300 units); Dubailand (6,200 units); Dubai Sports City (6,000 units); Dubai Silicon Oasis (4,200 units) and Al Furjan (4,000 units).
Office rents flat
Asking rents for prime office space remained flat in the third quarter, while secondary rents faced more downward pressure. Around 460,000 square metres of office space was delivered over the first nine months of 2012.
Demand remains highest for single ownership buildings in prime locations. Single ownership represents more than 60 per cent of the existing office stock with the remaining 40 per cent in strata title buildings. Vacancies in strata space in locations such as Tecom C, Jumeirah Lakes Towers and Business Bay, remain much higher than those in the CBD.
Tenant favourable market in Abu Dhabi
With limited number of projects being completed in third quarter, the Abu Dhabi market continues to remain tenant favourable for most asset classes.
The residential market continued to see sale price and rent declines. Since the market peak in 2008, the average prime rent for a two bedroom apartments in has fallen over 48 per cent.
The Executive Council recently announced a new regulation requiring all employees of the Abu Dhabi government and its affiliated entities to live within the emirate.
JLL believes this regulation, which is planned to take affect from late 2013, will strengthen the negotiating position of landlords and help stabilise rentals in the residential market.
Approximately 2,200 additional residential units were delivered in Abu Dhabi during the third quarter, bringing the total residential stock to 202,000 units by end of third quarter. With up to 6,000 units scheduled for completion in the fourth quarter, the total units could reach 208,000 units by the end of the year.
Office rents to fall
There were no significant additions to the office market over the past quarter with the total office stock remaining at approximately 2.7 million square metres. Significant new supply is due for delivery in the fourth quarter, which is likely to push down average rents, particularly for secondary quality assets.