Rents in older Abu Dhabi buildings fall 15%

Second half to see higher handover; prices not to recover before 2012

Rents for “inferior quality and old buildings" in Abu Dhabi fell 10 to 15 per cent in the second quarter 2011, while price recovery is not expected before next year, according to Jones Lang LaSalle (JLL) report.

“For lower quality and older units, rents continued to fall, decreasing 10 to 15 per cent in the second quarter.  However, rents for prime two bedroom apartments remained unchanged due to the limited supply and relatively high demand for this specific unit category,” the real estate consultancy said in its second quarter report.

Over the past year, recent supply deliveries and increasing vacancies in new good quality buildings resulted in annual rent declines of around 8 per cent for prime two bedroom apartment units and more than 28 per cent for lower quality units.

Besides, average rent for two bedroom apartments in Abu Dhabi fell in excess of 40 per cent since peak 2008.

Compared to alternative markets such as Dubai, rents in Abu Dhabi are still relatively high, but large amounts of upper segment supply handovers will continue to push rents down across the capital throughout 2011 and into 2012, JLL said.

More units to enter market

The second quarter saw only 980 units being delivered in Abu Dhabi District, comprised mainly of the Guardian and Al Yaqut buildings at the Danet development, taking total current residential stock to around 189,800 units.

Handovers will increase significantly in the second half with up to 14,000 units scheduled for completion. But some of these projects may experience further delays following recent trends.

“Although a large proportion of the residential pipeline announced prior to 2008 has since been delayed or cancelled due to developers’ over-reliance on pre-sales, the aggregate supply could still reach 247,000 units by the end of 2013,” the report said.

Apartments comprise around two thirds of the total upcoming residential units and the majority are located on Abu Dhabi Island, Reem Island and Al Raha Beach.

Price decline

Since fourth quarter 2010, average prices remained relatively stable around Dh11,800 per sq m for recently completed and almost completed projects such as Reem Island and Al Raha Beach. However, even at these rates, transactions have been minimal.

Average sales prices declined by more than 45 per cent, falling from Dh21,500 per square metres to Dh11,800 per sqm. Price declines have been even more pronounced for some projects that achieved sale prices over Dh32,200 per sqm in the market peak.

JLL said despite a number of new initiatives such as the announcement of three year visa for real estate owners, price recovery is not expected in 2011-2012.

“Over the longer term, price recovery is dependent upon initiatives that retain and grow jobs, especially for the expatriate population in Abu Dhabi, together with further visa reform,” the report said.

The introduction of rent-to-own schemes may boost demand, but only a limited number of developers offering this option.

Hotel occupancy levels rise

The capital will witness entry of nearly 1,800 hotel rooms in the second half even though no major new hotels opened in the second quarter.

Currently, the stock remains at around 11,600 rooms. About 6,700 additional rooms are expected to enter the market by the end of 2013, which reflects a reduction in the previous pipeline planned for the city. Several projects have been delayed due to current market conditions.

By 2013, total supply is expected to exceed 18,300, which represents a CAGR of 11 per cent.

During 2010, hotel performance across Abu Dhabi declined significantly, with RevPAR contracting approximately 50 per cent.
Year-to-date April 2011 figures reflect a resurgence in occupancy levels when compared to the same period in 2010. However, the preceding correction in average room rates continues to impact the market.

Average Daily Rates (ADRs) fell to AED 690 in YTP April 2011, representing a decline of 20 per cent compared to the same period in 2010. The recovery in occupancy levels restricted RevPAR contraction to five per cent during the first four months of 2011.

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