It is set to be an interesting year for the emirate’s residential real estate market as brokers, consultants and investors all wait for the delayed release of units including RAK Tower in Marina Square and apartments in Sun and Sky Towers, according to the latest report from Cluttons, the property specialists who have been in the region since 1976.
The imminent release of these will result in a spell of increased rental and sales activity, after two years of a stalemate in the market. This will likely cause a drop in average rental rates and the development of a two tier market, the report says.
Rentals at the lower end of the market have seen drops of around 10%, whilst drops in more prestigious areas such as the northern area of Abu Dhabi island have been less severe, at around 5%. The villa sales market has also seen moderate falls of around 2 to 5% in developments such as Al Reef, whilst private freehold GCC led villas have remained resilient.
Rental rates at the lower end of the market such as in Mohammed Bin Zayed City and Khalifa City A – B, have softened around 10% over the past quarter. A one bed is on average AED45,000 per annum while the higher end of the rental market has dropped around 5% over the past quarter. A one bed is on average AED105,000 per annum.
Freehold villas have seen moderate falls of 2 to 5% when compared to the fourth quarter of 2010. Private freehold GCC led villa market remain resilient with sales rates ranging from AED800 to AED1,100 per square foot.
In the office sector lease rates have fallen consistently since the peak of the third quarter of 2008 when average prime rents reached AED3,800 per square metre. Average prime commercial rents now stand at around AED1,600 to AED1,800 per square metre.
The report says that this faces an uncertain future over the next 12 months, with a further 400,000 square metres of space expected to be added to the market by the end of 2011. ‘The occupier market continues to face challenges largely due to subdued economic growth and weak business confidence. Generally take-up has been slow, and when matched with significant new office block completions has done nothing to restore a downward rental market,’ the report says.
‘As ever, successful landlords are those that offer most attractive terms and incentives and who recognise the benefits of a fully leaded building against holding out for better rents. For landlords to remain competitive they will need to be more creative in their offerings and consider breaking up larger shell and core floor plates,’ it explains.
‘Furthermore, a new breed of landlord will soon play a major role in the positioning of lease rates, as units are handed over in investment areas such as Sky Tower and Infinity Tower. They will be willing to offer space below market rates to bolster demand and stay ahead of further declines,’ it adds.
In the retail low transactions and strong demand has stabilised rents between AED2,500 and AED2,700 per square metre per annum. Total retail supply currently stands at 1.2 million square meters and this could double to 2.5 million square meters by 2013, the report says.
The newly opened Dalma Mall in Mussafah is the first new mall to come onto the market, and will be followed by a series of new shopping malls currently under construction including Yas Mall, Mushrif Mall, Paragon Mall and BMC Mall Mussafah. This will double the amount of retail space in the Emirate and will make the market much more competitive, and able to catch up with Dubai.
‘It is expected that rents will fall moving forward, especially after tenant incentives are taken into account. That said, upmarket pitches in affluent centres will continue to enjoy robust occupier demand,’ the report adds.
