A new report from Core Savills forecasts that rents will drop 4 to 7 percent in 2018
Although price and rents in Abu Dhabi are continuing to soften, the pace is beginning to decelerate, according to a new report from Core Savills.
In its ‘Abu Dhabi Residential Market Report’, Core Savills noted that the improving upward momentum of oil prices and government spending is improving sentiment across the emirate’s real estate sector.
“Despite the oversupply concerns and ongoing dampening economic sentiment, many regional buyers continue having faith in the long-term prospects of the city,” Core Savills group CEO David Godchaux said. “This faith is fundamentally driven by the fact that Abu Dhabi is comfortable with hydrocarbon reserves to fuel its future growth while government measures towards economic diversification are starting to bear fruit.”
Godchaux added that although while Abu Dhabi continues to be a long-term investment avenue, the secondary sales market remains muted as potential buyers wait for the market to fall further or are seeking off-plan stock with attractive payment options.
“Existing owners who bought properties at the peak are becoming reluctant landlords, looking to rent to an already limited tenant pool, rather than selling much below the acquisition prices,” the report noted. “The gap in unrealised expectation versus market reality is causing the secondary sales market to see long transaction timelines and fewer concluded transactions.”
In the rental market, villa districts continued to underperform because of a shift in occupier preferences led by contracting housing allowances, with rental declines hovering above 17 percent. Apartment communities recorded 7 percent drops.
The report noted that while 9,200 units are announced for completion this year, actual handovers are expected to be less than 5,000 units, with 60 percent of upcoming supply in the next three years concentrated on Reem and Yas Island.
“This new supply on Reem and Yas Island is forecast to add further downward pressure to rents,” the report said. “Although Saadiyat Island is also expected to see a significant increase in residential supply, rental rates in the area are likely to be somewhat resilient due to its growing appeal as a prestigious and cultural hub.”
Overall, the report forecast that rents would drop by between 4 and 7 percent for the rest of 2018.
“Rental stock is witnessing relatively steady take-up, particularly in areas dominated by new supply such as the Reem Island and few projects within the Abu Dhabi mainland,” Godchaux added. “This may elude the market with a perception of positive absorption figures along with a rise in number of overall tenants in the city.”
“However, upon closer scrutiny, this is just a displacement of a portion of the tenant pool from outer areas to central locations,” he added.