By Sarah Townsend
Residential rents fall 2% in third quarter and hotel vacancy rates up, says CBRE
Average residential rents in Abu Dhabi dropped 2 percent quarter-on-quarter at the end of September as job losses and a softening economy took their toll on the market, according to new research.
CBRE’s Abu Dhabi Market View for the third quarter of 2016 found that average housing rentals continued to decline amid economic uncertainty and a weak employment market with the quarterly drop taking the total year-on-year decline to date to 5 percent.
Luxury residences within masterplanned communities – usually highly favoured by blue chip corporate tenants and high-income expats – were particularly hard hit. They witnessed an average rental drop of 3-5 percent over the last quarter, while smaller and more affordable units have held up, CBRE said.
Mat Green, head of research and consultancy, UAE, at CBRE Middle East, said: “Despite the drop in overall rents, more affordable community housing products have still managed to demonstrate modest rental growth, or have remained flat.
“This underlines a general market shift towards cost sensitivity. With expat residents most susceptible to deflationary risks and company downsizing, we anticipate further migration of tenants to locations such as Al Reef Downtown and affordable mainland locations.”
CBRE’s market report found that office rentals, too, continued to slide due to weakened demand and ongoing downsizing operations by corporate tenants.
Secondary office rentals dropped by 2 percent in the third quarter of 2016 – translating to a 9 percent decline compared to the same period last year.
The trend has been accentuated by a development pipeline heavily orientated towards inferior quality products and locations, CBRE said, noting that Grade A office rents were more stable over the quarter. However, there are signs that market pressures may soon result in deflation of Grade A rentals, “although the lack of available high quality office product for lease is helping to insulate performance far better than in the overexposed secondary market”, the report said.
“Landlords are showing a greater willingness to negotiate with major tenants, underlining a sustained shift towards becoming a tenant-friendly market,” said Mat Green.
Meanwhile, the quarter was challenging for Abu Dhabi’s hotels market, the report said. Hotels suffered declining revenue performance due to ongoing deflation of room rates and low corporate demand as macroeconomic challenges hit the tourism and hospitality market.
CBRE’s report cited data from STR showing that Abu Dhabi’s year-to-date hotel occupancy rate to September was 70.2 percent – down by around 3 percent year on year.