The pressure on rents will continue to be intense across Abu Dhabi city, with next year likely to see them drop by a further 5-7 per cent.
This year, residential rents are down by 10-12 per cent and more than the forecasted 8 per cent, says Cluttons in its latest update.
The reason for the continued tightening of rents stems from many factors. The obvious one is the weakened demand brought on by job losses in key sectors. Plus, recently completed buy-to-let properties is pulling in quite a bit of buyer interest.
Then, there is the question of new and steady supply becoming available. “The sheer volume of rental stock means tenants are spoilt for choice, which is driving void periods and vacancy rates up,” the report notes. “We are aware of a number of prominent buildings where vacancy rates are as high as a third in some cases.”
But where landlords have “demonstrated sensitivity to market conditions, absorption rates still remain healthy”. (Even in the freehold offplan space, this is in evidence, with Aldar recording significant take-up for its mid-market Water’s Edge apartments on Yas Island.)
More developers will have to learn to play it smart, even pick up tabs from what their counterparts in Dubai did when faced with such a situation in 2016. “Developers may be forced to turn to the lettings market to generate incomes from unsold stock,” Cluttons states.
But there could be a downside to this for the wider market – this will likely “further depress any chances of a rebound in rental value growth”.
Among key locations, Al Reef Downtown had a 17 per cent drop in rents over the last 12 month, with two-bed leases down by as much as Dh25,000. And one-beds are Dh15,000 down from levels in Q3-16.
“With household finances under pressure due to a reduction in housing allowances, the removal of various subsidies and the impending introduction of VAT in January 2018, tenants are focused on value for money,” said Edward Carnegy, Head of Cluttons Abu Dhabi in a statement.
No respite for Abu Dhabi’s office rentals either
With less demand from key business and government enterprises, office rentals in Abu Dhabi could tread even lower.
Existing tenants are making full use of the market situation. “With increasing vacancy across the market, the majority of landlords are seeking to retain existing tenants where possible, typically agreeing improved terms at renewal,” said Edward Carnegy, Head of Cluttons Abu Dhabi.
Rent-free periods and easing of payment terms are becoming standard features. Some landlords are willing to go further, even offering to fit out the interiors for those tenants seeking relocations.
“We are seeing fairly significant churn from public sector and related entities, with at least 50,000 square metre requirements currently in the market.”
Cluttons states that top-tier office buildings have had rent drops, with the Aldar HQ building seeing a 2.8 per cent softening and International Tower by 3 per cent.
Prime office rents could end the year down 5 to 10 per cent from last year and likely to do a repeat in 2018.
For information on the real estate sector within the UAE, please visit our sister site, getthat.com.
Source: Gulf News