A decision to force Abu Dhabi Government staff to live in the UAE capital to qualify for housing benefits has led to boost in demand for rental properties, consultancy CBRE said on Monday.
However it said that despite a "noticeable rise" in leasing activity during the first half of 2013, average rents continue to fall.
Its latest Abu Dhabi MarketView said rents dropped by four percent during Q2 and are down by about 10 percent in the past year.
Last year, Abu Dhabi pressed public sector employees who reside outside the emirate to relocate within its borders, a policy which analysts say aims to address heavy oversupply in its real estate market.
The policy takes aim at people, believed to number many thousands, who commute to work in oil-rich Abu Dhabi while living in the neighbouring emirate of Dubai because of lower rents there or a lifestyle which they see as more comfortable.
Mat Green, head of research & consultancy UAE, CBRE Middle East, said: "The completion of a significant number of new residential units from master planned locations is also encouraging widespread relocation within the capital, as tenants look to capitalise on prevailing affordability as they search for new and better quality housing options."
"However, despite a noticeable rise in leasing activity during the first half of the year and record sales transactions, average rents continued to fall."
He said the highest demand is currently for 2-bedroom units, with rentals for upper middle and high-end focused accommodation, ranging from AED90,000-145,000 per year.
CBRE said prime developments around Raha Beach and Saadiyat Island remain hotspots for luxury housing with 2-bedroom apartment units at St Regis ranging from AED168,000-192,000 while similar units at Etihad Towers on the main island now start from AED135,000.
"Newly delivered residential developments such as Marasy Abu Dhabi and Nation Towers are commanding relative high rental rates, due to their superior quality finishes, waterfront views and wide ranging facility and amenity offers. This trend reflects sustained demand for true high-end residential properties which offer tenants a real point of difference against existing inventory," added Green.
He said the commercial market has shown some very early signs of a revival, with an increase in leasing transactions and rising occupier interest.
However, this was not sufficient to stop the decline of average rents, according to the CBRE report.
Rental rates for Grade A commercial office space have remained static during the quarter, but down five percent in annual terms while the annual decline in secondary office rentals is now close to 10 percent.
Green said that while the residential sector is expected to return to positive growth territory by the end of the year, a similar revival appears unlikely for the commercial office sector.
As a result, office rental rates are expected to see further declines, led by the weak performance of the secondary market.