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Outlook for real estate in Abu Dhabi muted after tough 2009, report indicates

The effects of the economic crisis were still being felt in the last quarter of the year although the residential market is slowing signs of stabilising, says the latest report from CB Richard Ellis Middle East.
The market continued to experience declining rental rates, albeit at a slower rate than in the previous four quarters. More affordable rental rates and better quality alternatives in Dubai were amongst the key factors influencing weaker residential demand levels in Abu Dhabi, the report says.  
A substantial portion of planned residential stock was temporarily put on hold with delays at Ream Island, specifically Marina Square, Sun Tower and Sky Tower, and Al Raha Beach.
It says that imminent completions at both the Khalifa A and Al Reef projects will assist in easing rents, relieving pressure for both residents and occupiers looking to expand their workforce within the Emirate.
Annual rents for apartments within the CBD posted the strongest performance with a one bedroom apartments down 4% compared to the third quarter. Landlords and agents in general are now more open to negotiations with tenants.
The sales market started to show initial indications of a slight upturn in fortunes during the quarter, with increases in both inquiries and the number of sales transactions and transactional volumes are anticipated to rise gradually. However the report says there will be no imminent return to the levels reached during the first six months of 2008.
‘Softening of rents and increasing negotiating power of tenants are thus expected to continue at least in the short term,’ said Mat Green, associate director for Research and Consultancy.
In the office market prime rents continued to slide and are down 45% from peak prices achieved in 2008.  However, a number of key commercial developments were still quoting rates of AED3,000 a square meter per annum.
Despite the comparatively low rents, finding tenants remains a challenge for both owners and agents, the report says. Increased availability is providing end users with greater accommodation options and improved bargaining power with landlords.  
Overall demand remains weighted towards smaller office units. While vacancy rates for office accommodation during the third quarter of 2009 remained low at around 2%, the impact of new upcoming stock and weaker demand for office accommodation could see this rate increase during the course of 2010, the report warns.
Although amendments to commercial law reducing the levels of capital required, encouraged an increase in start up businesses and this has expanded the numbers of potential commercial tenants which, it is hoped, will further fuel the demand for commercial space both in the short and long run, the report concludes.