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Govt residency rule boosts real estate rents in Abu Dhabi

‘This requirement has certainly contributed to the rising tenant demand that we have been recording. We expect that the ruling, which came into force on 01 September for 20,000 public sector workers and their families, will continue to place downward pressure on vacancy levels,’ said Steven Morgan, head of Cluttons Middle East.

‘At the same time, this will bolster residential rental and capital value growth rates, particularly in submarkets that provide easy access to Abu Dhabi Island and the lifestyle offered by Dubai,’ he explained.

Al Raha Beach is regarded as a prime example and rents increased by almost 15% during the second quarter. ‘This rise has been fuelled in part by tenants wishing to secure suitable accommodation ahead of the deadline and also by new job starters moving to the capital, particularly in the education, healthcare and hospitality sectors,’ added Morgan.

An upturn in employment, coupled with the government’s relocation requirement is expected to continue to reduce the oversupply of residential stock and push up prices. Morgan pointed out that rising levels of housing demand have already been evidenced by a 13.2% rise in average capital values for apartments in the first half of 2013.

Average price increases for high end apartments on Reem Island stood at 15.9% during the first six months of the year, more than double the overall 7.3% growth rate across the capital over the same period. This is in marked contrast to last year when high end apartment values contract by 3.3% on Reem Island, whist apartment prices slipped by 4.4% across Abu Dhabi.

Villas have registered capital value rises of 22% during the first half of the year, underpinned by the strong performance of submarkets such as Sadiyat Island. Al Reef Villas emerged as the strongest performing villa submarket in the six months to June, registering strong growth of 15.1 %, due to its family appeal and desirable location, adjacent to Sheikh Zayed Road.

The office market on the other hand remains subdued. The summer report says that whilst office supply continues to lag occupier demand, prime grade-A rents are holding steady at between AED1,700 and AED1,800 per square meter, while more secondary offices, in locations perceived to be inferior, are still experiencing rent reductions, dipping to just below AED1,000 per square meter.
 
The report says that it is office space in older parts of the capital that are likely to experience ongoing downward rental adjustment as more modern office space coming to market challenges older buildings.

‘With no boost to office demand levels expected in the near future, it is unlikely that a turnaround in office rental growth rates will be recorded this year,’ it explains.

The retail scene in the capital offers a more positive outlook, with around 200,000 square meters still expected to come online this year at Deerfields Mall, Emporium Mall at the Central Market and the recently opened Galleria Mall at Sowwah Square.

With 600,000 square meters of additional retail space projected to come to market from 2014 to 2017, we expect the malls in the capital to follow a similar strategy to those in Dubai, acting as anchors for future residential and commercial development.

Malls such as Dubai Mall (Downtown Dubai) and Mall of the Emirates (Barsha) have been the catalysts for housing and office demand in their respective submarkets and Abu Dhabi’s new mega malls are likely to act as the foundation blocks for similar future growth,’ the report adds.

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