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Property Insight from Abu Dhabi: Q3 2009 MarketView

With Matt Green, Associate Director - Research & Consultancy, CB Richard Ellis Middle East
HOP TOPICS

A number of initiatives have been implemented by both private and government sectors, in the hope of rekindling market momentum during Q3;

Proposed amendments to the existing business ownership law could allow for 100% foreign owned companies to operate outside free-zone areas;

Plans to develop 17,000 villas for UAE nationals across 23 locations announced;

More financial institutions announced expansion into mortgage market.

QUICK STATS

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OVERVIEW

Q2 proved to be a testing time for the Abu Dhabi (AD) property market with demand weakening across all sectors.

The traditional summer dip added further to a somewhat inactive AD real estate market in Q3.

However, both prices and rental levels have shown strong resilience amidst low confidence and investment appetite.

Property decisions remain largely on hold with minimal activity expected during final quarter.

Q3 highlighted several key plans and programs that are likely to influence both foreign and local property players:

Plan to amend current criteria for foreign business ownership in the UAE - under proposed measures, 100% ownership by foreign companies could be permitted.

At present, if foreign companies are situated outside free-zones, a maximum of 49% business ownership is permitted and they must have a UAE national as sponsor.

This is viewed as a welcome initiative, but overall impact on economy and real estate is yet to be realized.

During Q3, the Government announced development of 17,000 villas for UAE Nationals in 23 locations within AD.

• They are scheduled for completion within next 5 years.

• The majority of villas (64%) will be situated in AD City, whilst the remaining (36%) will be distributed within Al Gharbia and Al Ain regions.

Abu Dhabi Finance launched a new mortgage product - 'Compass'.

• It is designed to provide investors residing outside the country with up to 75% financing for purchase of residential properties in AD.

• Earlier in the year, RAK Bank and Abu Dhabi Islamic Bank (ADIB) announced plans to make AD their focus for mortgage finance, with ADIB looking to double their home finance to UAE nationals by the end of 2009 to AED 8 million.

It has become apparent during 2009 that both the Government and private sector are jointly taking the initiative to help revive real estate interests and improve market confidence.

OFFICE SECTOR

Both commercial sales and leasing transactions remained restricted during the quarter.

Asking prices for prime properties typically ranged from AED 19,500 - 26,000 sq/m.

Low levels of investment reflected the unmatched expectations of both existing investors and potential buyers with owners of properties reluctant to succumb to lower values in anticipation of positive cyclical spin, whilst buyers are wary of continued downturn in asset values.

On the leasing front, office rents continued to tumble, despite quite healthy market fundamentals.

Prime rental rats have plunged from highest recorded rate of AED 5,000 sq/m PA to AED 2,900 sq/m PA (40% year on year reduction).

Demand has dropped sharply with agents finding it increasingly difficult to lease new commercial space.

In prevailing market conditions, both occupiers and landlords have become more attentive to available options and have demonstrated a greater willingness to enter into negotiations.

As result, smaller office spaces are becoming increasingly popular as companies strive to contain costs. Landlords are increasingly adopting a more flexible approach to leasing, offering more attractive occupier terms and a wider range of incentives which were not generally offered or readily available when the market was at its peak.

In general, rents on inferior quality office space have softened the most during the quarter as occupiers seek to maximize value for money.

Increased availability over the next 12 months may further add downward pressure to rents if not matched by demand levels.

RESIDENTIAL SECTOR

During H1, residential rental rates fell significantly, but during Q3 there was a more modest decline, particularly for housing units situated within the CBD.

Apartment rents in central locations dropped by around 5%, compared to Q2 [5-10%] whilst many apartment rents remained unchanged.

Average annual rents 1x bedroom in city centre range from: AED 100,000 - AED 130,000/pa

Prime rents still in excess of AED 140,000.

Current market conditions have forced landlords to relax the usual payment terms, with cheques now being negotiated on individual basis.

Residential units situated off-island continue to experience a higher reduction in rents - 8%-15% lower than in Q2. .

A trade-off between location and rental rates is becoming more evident, but drawbacks for these locations do exist in the form of limited access to public transportation systems.

For these existing and future developments to be more appealing and accessible to end users, factors such as adequate parking facilities, access and availability of public transport systems should be considered.

Our research identified a downward movement in sales prices during Q3, with sales transaction activity at extremely low levels.

During Q3 average sales prices for high-end apartments and villas started from AED 11,300 sq/m and AED 8,600 sq/m respectively.

Nearly completed projects in developments such as Marina Square on Reem Island and a number of Al Raha Beach projects, received a higher level of attention with upcoming completion dates signalling reduced risk levels for investors compared to competing off-plan products.

MARKET OUTLOOK

Abu Dhabi market is expected to maintain in a relatively strong position fuelled by existing meager supply across virtually all asset classes.

Rents are generally expected to remain weak for the remainder of 2009 but are likely to stabilize more during 2010.

As significant new supply of residential units and office space under development becomes available, we foresee that landlords will increasingly need to adopt a more flexible approach to lease negotiations.

Sale and lease rate adjustments are likely to continue during 2009, although financial institutions are slowly making their credit facilities more available which should provide some support to the market when allied to improved appetites from both investors and developers.

-Ends-

Further press information
Matt Green is available for comment and interview.

The full report can be sent on demand. Please contact Tom Watterson (momentum) on +971 4 390 1630 / +971 56 605 2854 for further details.

Disclaimer 2009 CB Richard Ellis
Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.

© Copyright 2009 CB Richard Ellis

Contact:
Tom Watterson
+ 971 (4) 390 1630

© Press Release 2009

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