Rental values in Abu Dhabi soared by nine percent in the fourth quarter of 2013 as annual rises averaged 16 percent in the UAE capital, real estate consultancy CBRE said on Tuesday.
According to its latest Abu Dhabi MarketView, rent increases were highest for one bedroom units which jumped 11 percent in the three months to December 31.
CBRE said growth in the Abu Dhabi residential sector was "highly fragmented" last year, adding that the recovery is expected to gather further momentum over the next 12 months, as the impact of the recent rent cap removal is felt.
Mat Green, head of research & consultancy UAE, CBRE Middle East said: "The recent move comes at a time when housing demand was already on the rise, following the earlier Government intervention to change the conditions under which state run companies paid housing benefits to their employees."
He added: "Despite Abu Dhabi's impressive return to growth, the market remains polarised in its performance, with significant variation found between the emirates key residential locations and by the age of the specific property.
"With a large portion of the capitals housing stock now quite dated in appearance, there has been widespread tenant migration towards new developments upon completion, which in turn has resulted in sustained rental deflation for many older units."
The CBRE report said that the rental gap between properties location 'off-island' and those in 'on-island' locations remains firmly intact, with apartments in off-island locations 44 percent cheaper than those on the main island.
The average annual rental for a two bedroom apartment unit off-island is now AED66,500 per annum. This compares with AED115,000 per annum on island.
"Whilst rental growth appears to be a new reality for the majority of residential tenants, the high volume of expected new supply may at least help to curb some of these inflationary pressures, although again this is likely to be location specific and dependent on the local market fundamentals," said Green.
He said over the next three years, roughly 40,000 new residential units are forecast for delivery across the capital with close to 45 percent to be completed on Reem Island alone.
Green added: "We can expect an increase in the level of residential investment activity, particularly within established master plan locations. This in turn may lead to an increase in the number of new construction starts as we move through 2014, after what has been a relatively quiet period for the new development launches."
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