- Average residential rents grew by 4% year-on year
- Average office rentals recorded a 2% decline during the quarter
Dubai -- Average residential rents in the UAE capital grew by 4% (y-o-y), despite the slight decline experienced in the previous quarter, according to the Q4 2015 Abu Dhabi MarketView by global real estate consultancy firm CBRE.
Mat Green, Head of Research & Consulting UAE, CBRE Middle East, said, "Despite the emergence of more moderate economic conditions, the residential sector has continued to depict stability, with only a marginal -1% decline in overall average rental levels recorded during the quarter. This was largely brought about by downside in the rental performance of some larger and high end apartment types. Inversely, slight rental increases have been apparent for smaller, more affordable housing units."
According to the CBRE report, some landlords are now starting to offer tenants more flexibility, whilst also becoming more receptive to minor rental discounts as they strive to maintain and build tenant loyalty in order to uphold occupancy rates.
In the absence of a formal rental cap system or related regulatory measures, rental movements in the capital will continue to be determined by open market forces. Off-island locations such as Khalifa City, Mussafah and MBZ serve as alternative destinations for residents looking for more budget focused options. Although, limited public transportation infrastructure remains a key downside, making these locations less accessible for some.
On average, annual rentals for studio and one bedroom units in Khalifa City range between AED30,000-45,000/annum and AED40,000-55,000/annum respectively. This translates to a minimum 35% rental gap when compared to average rentals for low to mid-end properties within the city centre, which typically range from AED40,000-70,000/annum for studios and AED60,000-110,000/annum for one bedrooms.
Despite a slight softening in the market, Aldar Properties reported 99% occupancy during Q4 2015 for the 4,732 residential units within their leasing portfolio.
According to the MarketView, Abu Dhabi's office market is starting to show the strain of a weakening economy, with oil experiencing a sustained period of low pricing.
"Sluggish occupier demand and rental declines have become more evident across the market, with vacancy rates rising and requirements for new office accommodation dwindling", commented Green.
Despite a successful diversification program, the capital's largest commercial space occupiers remain the public sector, oil and gas companies, and the banking and insurance sectors, all of which are experiencing challenges during a period of economic uncertainty. This is impacting the professional services sector in Abu Dhabi, with a number of law firms recently announcing downsizing and/or office closures amidst reduced workflow from the government and related entities.
"Low levels of demand and a reduction in the number of completed lease transactions reflect the subdued market conditions, negative sentiment and cautious approach of investors and commercial occupiers alike. As a result, average office rentals recorded a 2% decline during the quarter, falling to AED1,050/m2/year." concluded Mat Green.
Average prime rentals remained unchanged at around AED1,900/m2/annum, reflecting the two tiered market between the performance of secondary and prime accommodation. Despite the pressing economic conditions and sluggish leasing activity, the limited availability of high quality office supply coupled with the comparatively small development pipeline for new Grade-A properties, prime rentals are expected to remain more resilient to prevailing pressures.
"The gradual reduction in Abu Dhabi's rental rates highlights the emergence of a wider market slowdown, and it is envisaged that a more pronounced market reaction will manifest as we progress through 2016. Without a sustained oil price recovery in the coming months, office occupancy rates are expected to decline further."
According to the report, the hospitality market continues to experience robust growth in passenger traffic, with close to 23 million passengers passing through Abu Dhabi's terminals during 2015. This translated to a 17.2% increase in comparison to the previous year.
As per figures from the Abu Dhabi Tourism and Culture Authority (TCA), the total number of tourist arrivals during 2015 were estimated in excess of 4 million, up by around 18% year on year. The United Kingdom, India, China and Germany remain as the key source markets for inward guest arrivals.
"The positive growth in tourist arrivals was also coupled by an increase in the average length of stay, which translated to 1.19 million guest nights, a 22% rise over 2014 figures," further stated Green.
"The overall increase in tourist arrivals, also delivered growth in the average occupancy rate, which rose from 72.7% in 2014 to 74.4% 2015 according to data from STR Global."
There was a -1% decline in the average daily rate (ADR), however the overall net impact on revenue per available room (RevPAR) was still positive, with rates rising by close to 2.0% over the same period last year.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.ae
CONTACT:
Dhaliya Zankawi, Grayling
+971 55 328 5649
dhaliya.zankawi@grayling.com
© Press Release 2016
