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Wed 29 Jul 2015 01:58 PM

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Abu Dhabi rental growth slows in Q2 to two-year low

CBRE report says average rents in UAE capital are still about 10% higher than in Q2 last year

Abu Dhabi rental growth slows in Q2 to two-year low
Skyscrapers stand on the skyline viewed from the Central Market in Abu Dhabi, United Arab Emirates, on Wednesday, Jan. 11, 2012. Abu Dhabi, the oil-rich sheikhdom that spent 36 billion Dirhams ($9.8 billion) bailing out its biggest developer in 2011, will probably reach for its checkbook again as property companies in the United Arab Emirates face a stalled market and deadlines to repay debt. (Credit: Bloomberg News)

Abu Dhabi rental growth slowed to its most sluggish pace in two years in the second quarter of 2015, according to real estate consultancy CBRE.

Rents in the UAE capital rose by just over one percent during the quarter but are still about 10 percent higher than in the year earlier period, said CBRE's Q2 2015 Abu Dhabi MarketView.

According to the report, luxury apartment residences within master planned communities remain in strong demand amid relatively limited new supply. This equated to a 14 percent increase in rental levels during the past year alone.

Mat Green, head of research and consultancy UAE, CBRE Middle East, said: "As has been the case historically, there appears to be a renewed focus on the development of high-end residences, particularly within the Investment Zone areas, with less focus on much needed affordable homes. This underlines a potential challenge for the wider market, with a continued mismatch between demographic trends and housing development."

The Abu Dhabi office market remained subdued during the quarter, characterised by weak occupier demand, CBRE said.

"The quiet market atmosphere was in part due to the cyclical nature of the property market, but also reflective of the current economic situation, in a market which is principally driven by the Government and oil and gas occupiers. This was also compounded by signs of a slowdown within the professional services sector, again driven by reduced Government activity," said Green.

A two-tiered office market continues to prevail in Abu Dhabi, and while no rental change was recorded quarter on quarter the outlook for the secondary and prime markets differ markedly, according to the report.

Between 2015 and 2018, roughly 1.45 million square metres of new office accommodation is set to be delivered across the capital. With the majority of new office supply expected to be secondary in terms of either location or quality, further rental deflation for inferior properties is anticipated in the short to medium term, CBRE said.

Green added: "While Abu Dhabi's real estate market witnessed relatively steady conditions during the quarter, the sector is still somewhat vulnerable to the current oil price situation, particularly its potential impact on major occupiers in the Government and oil and gas sectors, and other related industries.

"That said the market situation is softened by the relatively constrained development pipeline. Around 34,000 new residential units will be completed up to 2018, notably down on the five-year average and a similarly tight pipeline also exists for new Grade A office supply, with only a handful of good quality office properties are expected to be delivered in the short to medium term.

"A similar story is also apparent for the retail and hospitality markets, with the pipeline of new supply lower than five year averages across both sectors, easing any potential fear of oversupply," he said.

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