Abu Dhabi residential rentals rise 20%
Housing units in off-island locations saw higher rent growth during Q1
Residential rentals in Abu Dhabi have achieved significant growth during the first quarter of 2014, with an average rise of close to 10% whilst housing units in off-island locations experienced higher rent growth at 14% during the period, according to the latest Abu Dhabi MarketView by CBRE.
Mat Green, head of research & consultancy UAE, CBRE Middle East, said: “With affordability fast becoming a concern for many residents, there has been a steady rise in demand for more affordable housing options, with off-island locations such as Khalifa City A and Mohammed Bin Zayed City becoming popular choices for the more budget focused tenants.
“Units within master-planned developments in mainland locations, including Al Reef Downtown, Al Ghadeer and Hydra Village, are now commanding rentals that are significantly higher than similar non-community based properties.”
According to the CBRE report, two bedroom apartments within the Al Reef Downtown development currently range between AED80,000 –105,000/unit/annum, whilst similar property types within the aforementioned mainland locations have rentals from AED65,000-85,000/unit/annum.
“Annual rents for a typical two bedroom city centre apartment are now observed between AED95,000 – 130,000/unit/annum, whilst similar residential units within prime developments have rentals between AED 150,000 –210,000/unit/annum,” said Green.
“With most of Abu Dhabi’s prime residences having been completed within the past three years, rentals have actually remained relatively stable even after the removal of the rent cap.”
Residential sales rates have seen little movement during the quarter, typically ranging between AED10,225 – 15,070/m2 for areas such as Al Raha Beach and Reem Island. However, with market conditions improving, CBRE anticipates escalating sales growth in the coming quarters amidst rising rentals and stronger demand.
“Abu Dhabi residential market looks set for a period of sustained price and rental growth. This follows on from 12 months of steady recovery during 2013,” stated Green.
According to the report, the office market has enjoyed an upbeat start to 2014 with stronger commercial interest and more leasing transactions being completed. A total of 850,000m2 of new office accommodation will be delivered over the next 24 months. This new supply is expected to maintain deflationary pressures in the secondary rentals market.
“The government and hydro-carbon sectors remain the principal demand generators for the office sector. A positive economic outlook is also fueling renewed investor appetite and rising business confidence across the capital,” commented Green.
During Q1 2014, prime rents remained flat at AED1,850/m2/annum, with rentals typically falling in the range of AED 1,600–2,100/m2/annum. However, there were a few sub-let transactions during the quarter within select prime office buildings that took place between AED 2,000–2,200/m2/annum.
In contrast to the relatively stable prime rental performance, secondary office products continue to slide with rentals falling by close to 2% from the previous quarter. Average annual rentals for a typical secondary office space are observed at AED1,175/m2/annum - 6% lower than during the same period 12 months ago.
“The contrasting performances of the prime and secondary office markets mirror the prevailing demand dynamic which is driven by occupier flight to quality. It also highlights the negative impact of rapidly rising secondary stock levels which have been key in maintaining the trend of rental deflation for secondary accommodations,” further added Green.
New space requirements from professional services firms have played an important role in elevating overall office demand levels during the quarter. Similarly, the recent growth in sectors such as finance, hospitality, aviation, healthcare and tourism, where companies a number of companies have been found to be upgrading or expanding their footprint due to new headcount requirements, noted the report.
“The commercial office market will remain quite fragmented in the short term with secondary accommodations likely to experience further rental deflation in the coming quarters. However, we can expect the prime market to be more stable, but with future growth potential moving forward as the business environment continues to improve,” concluded Green.