Downturn for property rents in Abu Dhabi as market is flooded with new supply

Residential property rental rates in Abu Dhabi fell by 5% in the first quarter of 2012 as a wave of new supply began to hit the market, according to the latest real estate report from Asteco.

The average annual rent for a two bedroom apartment on the corniche ranged between AED120,000 and AED160,000 in the first three months of the year, down 6% from the previous quarter.

Rents for two bedroom apartments on Al Raha Beach saw an even bigger decline, falling some 14% from the previous quarter to between AED105,000 and AED150,000.

According to the Asteco report, some 3,000 residential units are now being delivered at Al Muneera and Al Zeina at Al Raha Beach, while a further 1,455 units are ready for occupation at Marina Square, Reem Island. The remaining 2,030 units at Marina Square are expected to enter the market within the next six months.

Villas rental rates fell 13% in MBZ and Mussafah, which the property firm said was due to large volumes of average to low quality stock being handed back to landlords.

Sales prices for villas in Al Raha Gardens, Golf Gardens and Al Reef Villas remained relatively unchanged, suggesting good quality villa communities were still in high demand.

Elaine Jones, Asteco chief executive officer said that she expects rental rates for many apartments and villas to decline further as additional properties are completed.

‘The increase in supply in the higher end segment of the apartment rental market in Abu Dhabi is likely to result in further downward pressure on rents,’ she said.

The report also says that some corporate tenants previously leasing villas for their staff are handing back the properties in favour of purpose built apartments. This, in turn, has lead to strong demand for affordable apartments in MBZ and Mussafah which have seen only minimal rental declines during this quarter; whereas the vacated villas now reappearing on the market are proving difficult to re-let, even at heavily reduced rents.

Activity in the office sector has slowed compared to the previous quarter, with companies continuing to take a cautious approach towards expansion or relocation plans. This is further accentuated as rents in new developments have not adjusted substantially this quarter given the good levels of activity witnessed towards the end of 2011.

Landlords of older buildings have started to react to the changing market dynamics and are becoming more competitive in their asking rents. This has led to some companies reviewing their plans to relocate since the rental gap between existing properties and newly built developments has widened substantially.
Demand is predominantly coming from existing companies in the City, which could have an impact on the rental levels offered within some new developments as landlords adjust rates to entice companies to relocate.