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Fri 23 Oct 2015 01:02 AM

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Abu Dhabi rents fall in Q3, first quarterly drop in two years

New CBRE report says rental values in UAE capital fell 1% but maintain annual growth rate close to 8%

Abu Dhabi rents fall in Q3, first quarterly drop in two years

Average Abu Dhabi rents fell by around one percent in the third quarter of 2015 but maintained an annual growth rate of close to eight percent, consultancy CBRE has said.

Its Q3 2015 Abu Dhabi MarketView said the negative impact of the economic slowdown is evidently being felt in the Abu Dhabi residential market, with rents finally being checked after a series of quarterly rental growth, which stretched back to Q3 2013. 

Mat Green, head of research and consultancy UAE, CBRE Middle East said: “The market is showing some signs of fragmentation, with older and poorer quality apartments - particularly those in secondary locations - experiencing rental declines and these declines have dragged down the performance of the wider market.  

“However, residential villas depict a contrasting trend, recording a small increase of up to 1 percent during Q3 2015.  The limited supply, particularly within the main Abu Dhabi island, reinforced the steady performance of this segment.”

Among residential property types, smaller units such as studios and one-bedroom apartment units remain in strong demand, CBRE said in the report.

“Higher income individuals and corporate occupiers continue to show a preference for master-planned developments, particularly established communities which offer residents access to facilities and services. As a result, prime developments across the capital have shown greater resilience to the emergence of more challenging market conditions during the quarter.  This is reflected in the widening rental gap, as rentals for new leases remain unchanged from the previous quarter despite the prevailing market conditions,” added Green. 

CBRE said while there are clearly some headwinds for the residential market, the low level of expected completions over the next three years will help provide a cushion against the ill effects of the declining commercial market and a slowdown in some other sectors of the economy which ultimately influences demand for housing.

On average, the emirate will see around 8,500 new housing units per annum over the next three years, in contrast to the 11,000 units which have been completed annually over the past five years. 

According to the report, the local office market is starting to feel the strain of lower oil prices with declining demand and rentals. 

With the oil and gas and public sectors serving as the primary office demand generator, demand for office space from both new occupiers and expansion of existing end-users has started to slow. 

These conditions have also had a knock on effect on other parts of the office sector, including some professional service companies, such as law firms, which rely heavily on work from government and government-related institutions. 

Average prime office rentals remained steady during Q3, Green said, adding that while the wider market is expected to face further deflation of rental rates, the prime segment is anticipated to show greater resilience to prevailing conditions. 

"With the majority of Grade-A office developments achieving high occupancy rates and with more limited stock overall, prime rents are expected to remain broadly stable in the short-term."  

Commenting on the outlook of the market, Green added: “With on-going economic challenges brought about by a period of lower oil pricing, US dollar strength, and sustained global uncertainty, the outlook for Abu Dhabi’s real estate market is for a period of further deflation in the short term.

"We expect to see a fragmented marketplace, with more pronounced declines to be experienced in secondary locations and for inferior products.”

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