Drop in Abu Dhabi rents to persist

Occupier demand and residential rents in Abu Dhabi fell in the second quarter and the trend is expected to continue for the rest of the year as fresh supply of units hit the market, real estate consultancy JLL said.

 In its Abu Dhabi Q2 Real Estate Market Overview released on Monday, JLL said marketplace conditions had led to a decline in demand and rents, while residential sale prices have also declined, affected by the continued reduction in transaction volumes and sentiment.

“Mergers, job cuts, and reduced government spending have continued to impact employment and population, leading to the decline,” it said.

The report said despite the decline in office demand following consolidations and downsizing in the oil, financial services and government sector, office rents have remained unchanged for both Grade A and Grade B Space as office supply remain stable with no major completions in the second quarter.  JLL said there has been a polarisation of demand, resulting in an increasingly two-tier market in recent years. The same trend is now emerging in the retail sector where an increasingly two-tier market is resulting in a growing gap between rentals for prime and secondary malls.  “The retail market remained stable in spite of a continued reduction in spending. Retail spending is expected to continue to decline over the short-term, given the reduction in personal disposable incomes and corporate hospitality. While rents have remained stable, mall operators continue to extend leasing incentives to attract and retain retailers,” the JLL report said. The hospitality market registered a seven per cent drop in average daily rates, or ADRs and a three per cent drop in occupancy levels compared to the same period last year. “Overall, second quarter in Abu Dhabi saw a decline in residential and hospitality performance, while retail and office markets remained relatively stable.”

 “The tough macroeconomic environment ahs forced oil and gas companies and other entities to continue to restructure and cut budgets, negatively impacting demand for office space,” it noted.

 In the residential segment, around 900 units were delivered during second quarter, bringing the total stock to approximately 250,000 units. A further 4,000 residential units are currently scheduled to enter the market by the end of 2017, mainly within Reem Island, Saraya and on the Corniche.

Average prime rents for two bedroom apartments decreased by three per cent in second quarter to reach around Dh142,300 per annum. “This decline is mainly due to the continued increase in vacancy rate resulting from further job losses. Apartment rents have now declined by around 10 per cent over the past 12 months,” said the report.

 Average sales prices for prime apartments and villas also declined by three per cent (12 per cent year on year) to reach approximately Dh13,500 per square metre due to the decline in sentiment and reduced transaction volumes, said the report. 

 – issacjohn@khaleejtimes.com