Oversupply to further depress Abu Dhabi rents

House supply down 60% from Q4 2008 estimate; Office vacancy remains at 8% in Q3

Project cancellations and construction delays have decreased future residential supply estimates in Abu Dhabi by around 60 per cent since second quarter of 2008, Jones Lang LaSalle (JLL) has said.
Average apartment rentals have declined 16 per cent year-on-year (YOY), while some areas plunging 30 per cent, the global real estate consultancy said in its third quarter market overview.
"Abu Dhabi's residential rental rates peaked at unrealistically high levels during 2008 due to booming demand and limited supply, compounded by the impact of the rent cap. While there remains a very wide rental disparity, recently delivered buildings and increasing vacancies in existing good quality buildings have resulted in a Y-o-Y decrease of 13 to 18 per cent in average rentals," the report said.
Forthcoming over-supply in the upper segment of the market is expected to result in a continued decline in average rentals. Lower and mid-market segments will remain expensive relative to affordability due to an overall shortage of supply in these segments.
According to JLL, the total current stock of 182,000 residential units is expected to reach 251,000 units by the end of 2013. Around 69,000 additional units will be delivered by 2013, mainly targeting the middle-high and luxury segment.
The realty market has witnessed a major fall in pricing, with average prices continuing to fall to Dh1,100 per square feet in third quarter compared to highs of Dh3000 during the boom time.
"The introduction of flexible payment plans and more competitive finance rates have sought to stimulate residential purchases. However, transactional activity remains limited due to low confidence levels from consumers and investors," the report added.
This website reported last week quoting Reidin.com that residential property prices in the capital had fallen by 15 per cent in the first three quarters of 2010 compared to the same period last year.
"Despite a continued decrease in rents, relatively stable sale prices and limited transactions, Abu Dhabi's residential market will continue to be under-supplied in overall terms for the coming years," JLL said.
Office rentals stable
Despite many projects being delayed, a further 1.5 million square metres is expected to enter the market before the end of 2013, increasing the total office stock to 3.7 million square metres. Vacancy level currently stands at eight per cent for the quarter.
"Office market vacancies have remained similar to the second quarter as no major new supply has entered the market. Vacancy is expected to increase in line with the upcoming supply until economic development initiatives boost new demand," the report said.
Grade A rents have remained stable and maintained an average of Dh2,200 per square metre per annum in the second quarter, having reached a high of Dh3800 in the fourth quarter 2008.
"Quoted rents for all grades have remained the same as the second quarter 2010, having declined by around 21 per cent on YoY basis. There have been few leasing transactions completed in the third quarter from which to determine achieved rentals. However, sentiment suggests tenants are in an even stronger negotiating position," JLL added.

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