Abu Dhabi rents pushed higher on relocation rule

Average rents in new projects in Abu Dhabi have started to increase following the decision to press all public sector employees to relocate to the UAE capital, property consultants Cluttons said.

Rental prices in areas such as Raha Beach, Raha Gardens, Al Reem Island, Saadiyat and Al Reef have risen 10 percent to 25 percent over the last six months amid increased demand, Cluttons said in its Abu Dhabi real estate report. 

“The recent decree that all government employees, as well as those who work for government-affiliated companies, must live within Abu Dhabi has helped fuel residential property demand,” noted the report.

“The Dubai to Abu Dhabi migration is expected to continue throughout 2013 as existing leases in Dubai expire,” it added.

Property prices in Abu Dhabi have declined by over 50 percent since the onset of the global financial crisis and new supply has threatened to undermine them further. Government officials last year introduced a new policy encouraging all public sector employees living outside the capital to relocate in a bid to help prop up the market.

While average rental prices continue to decline, newer developments are starting to show signs of improvement, said Cluttons.

The average cost of a two-bedroom apartment in Raha Beach has increased 22 percent over the last six months to AED135,000 (US$37,000) a year while apartments on Saadiyat Island are commanding 25 percent more than six months ago.

“The increases are linked to general market demand. This is being driven by an influx of people moving to Abu Dhabi from both Dubai and outside the region, as well as relocating within the city from older buildings, which lack equivalent facilities to the modern developments,” said Cluttons.

While good quality property in well-located areas will continue to rise, property in older buildings may decline as more supply comes into the market. The average price of a two-bedroom apartment, located in an older building, has declined by ten percent in the last 12 months.

“The increased supply of new apartments is expected to put downward pressure on rents across the island as people choose to relocate to newer buildings.”

Landlords in older building may be forced to lower asking prices, added the report. 

“Landlords in older buildings will be forced to further lower rents as vacancy increases, in order to secure a return on their investment. The redevelopment of older buildings will also be crucial to protect rents and reduce vacancy levels, if they are to compete with new stock entering the marketplace.”