Abu Dhabi rental market softens with residential supply going up

Apartment rents in Abu Dhabi saw marginal falls in the last three months of 2009, as increased residential supply came on stream, softening prices in the capital, according to Asteco, the largest property services company in the UAE.

"Given the slight increase in vacancy levels and the additional supply of residential property in Abu Dhabi, the rental market has shown signs of softening, striking more of a balance between the negotiating power of tenants and landlords," said Elaine Jones, CEO of Asteco.

Jones was commenting on the latest Asteco quarterly report on the Abu Dhabi property market for Q4 2009. "The growing availability of units and a revival in market activity after a traditionally slow summer period have resulted in a minor downward fluctuation in the cost of renting in Abu Dhabi," she added.

Though rents in Dubai have on average remained stable over the last quarter, apartments which offer superior amenities such as access to a gym, swimming pool and free parking are still in the region of more than 20 per cent cheaper than in Abu Dhabi, according to Asteco.

"Thus the number of people working in Abu Dhabi but continuing to live or moving out to Dubai remains noteworthy," Jones added. "This trend is not expected to change in the short term without the perceived value for money versus location issues being addressed."

In terms of new quality supply in Abu Dhabi, there are around 2,000 new apartments due to be ready for lease on Abu Dhabi island during the first half of 2010, with a similar number during the second half, the report said. In addition, Marina Square, Sun & Sky Towers and Al Bandar will provide around 6,500 apartments by the end of the second quarter of 2010 with 1,286 more units due to come online at Al Muneera by the end of 2010.

On villa rents, Asteco reports a mixed picture. "During the last quarter villa rents on the main Abu Dhabi island declined between 10 and 20 per cent with an increasing number of landlords willing to accept reduced rents to secure tenants quickly," the report said. The largest falls have been in the larger five-plus bedroom villas at the luxury end of the market.

Conversely, the off-island villa developments of Al Raha Gardens and Sas Al Nakhl have witnessed continued healthy demand following sharp reductions in rents earlier in the year. Rents have remained largely stable on average over the last three months, with a substantial number of new villas being handed over during the summer.

Retail rents for ground floor shop units and showrooms in Abu Dhabi have fallen by between five and 10 per cent over the last three months, continuing the downward trend from earlier in the year, Asteco reported.

"Despite the drop, there is, in many cases, still a mismatch between landlords' rental expectations and those of prospective tenants, and thus an increase in available vacant space is evident, providing retailers with options and thus negotiating power."

Shop units with good prominence and prime frontage to main roads are said to be benefiting from high pedestrian footfall levels, have generally been able to sustain rental levels, whereas units in secondary locations are proving more difficult to let, resulting in new leases falling by up to 10 per cent. The Corniche continues to lead the market with an average rent of Dh,500 per sq m, followed by Khalidiyah and Bateen at Dh2,300 per sq m.

With demand remaining subdued in the office sector, Asteco says there has been little open market activity over the last quarter triggering landlords to offer reduced rents. However, in the current climate tenants are more price-conscious than ever in the office sector.

"The majority are adopting a wait-and-see attitude due to the economic climate and the level of supply coming onto the market, in order to ensure they get best value for the lease terms negotiated," the report said.

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