Monday, Apr 17, 2017

Dubai: The best rental deals on residences in Abu Dhabi could be on the new one ones as landlords ramp up on incentives. Market dynamics also had a hand in keeping rentals on new deliveries within a tight range.

“The delivery of 2,700 new apartments over the last 15 months put further pressure on rental rates,” states the first quarter update from Asteco, the marketing services firm. Consequently, the “majority of new supply was offered below prevailing rates to facilitate a higher take-up.” (Interestingly, as many handovers - 1,350 units - took place in the first three months of this year as in the whole of last year. By the year-end, it is expected developers will have delivered 2,550 apartments.) They have to as rents in Abu Dhabi remain under extreme duress, particularly at the top end of the residential leasing space. On many counts, the level of stress on asking rents is much higher than what landlords in Dubai’s freehold zones are facing. What is remarkable about Abu Dhabi is that it is happening within a much lower residential base.

High-end units recorded the largest drop with 12 per cent on average in the last 12 months, while for the wider home leasing space it was by 8 per cent, Asteco adds. The state of the job market was particularly felt, as “limited public spending, job cuts and a reduction in staff allowances continued to affect sentiment.”

Landlords are facing a stark choice - stick to their demands and see their tenants moving out and having to keep the units unoccupied for longer. Or they can give in to market forces and sign up tenants for the best they can get under the circumstances. Tenants were “negotiating favourable leasing conditions as budgets were reined in, due to economic uncertainty and overall employment prospects,” said John Stevens, managing director, Asteco.

But even among the general flux, there were some linings that lent hope. Villa rentals “put up a slightly better performance” with declines limited to 5 per cent over the last 12 months and a marginal 2 per cent for the first quarter, the report finds. This, it attributes, to low demand and limited availability of quality units”. (Villas in communities such as Al Raha Gardens and lower end units on Abu Dhabi Island were down by up to 12 per cent.) Things will remain just as tight on the sales side. New mid-market launches could bring back buyers and end-users, but for any sales upturn to extend to all property classes might be a stretch.

“This quarter (January to March) has underscored the existing trend that 2017 will be challenging,” said Stevens. “We expect to see further corrections, but with a marked increase in demand for good quality and competitively priced products as the appetite for older stock fades.

“Indeed, we’ve already witnessed off-plan, well-priced villas with flexible payment plans, such as TDIC’s Lagoons projects, generating interest from potential investors.”

BOX: New offices in Abu Dhabi burdened by vacancy

Office tenants in Abu Dhabi seem to be staying put. They are showing no inclination to upgrade or seek better locations for their premises, causing lease rates to drop 10 per cent compared with the first quarter. On a quarter-on-quarter basis, the decline is 2 per cent, according to Asteco.

“Buildings with limited parking and larger floor areas struggled and landlords continued to sub-divide units and offered reduced rates and incentives to entice tenants,” the report says. “Rentals in older Grade B buildings ranged from Dh650-Dh930 a square metre, whilst fitted space in new prime buildings achieved Dh1,800 per square metre on average.”

Three prime office towers are expected to be handed over in 2017, including the ADIB Headquarters building on Airport Road, as well as Leaf Tower and Omega Tower both located on Reem Island, together adding approximately 180,000 square metres of Grade A stock.

Supply completed in 2016 was 84,000 square metres.

By Manoj Nair Associate Editor

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