• Home
• Real Estate
• News Article

Abu Dhabi rents set to drop on new supplies

By Issac John DUBAI - With supply expected to outstrip demand over the next 12 months, rental rates in Abu Dhabi will drop further this year as the emirate gears up for a growth of five per cent in 2012, real-estate consultant CB Richard Ellis said on Tuesday.

"Sound macro-economic fundamentals, a solid fiscal stance and a stable political environment offer an encouraging outlook for Abu Dhabi. However, amidst a more positive outlook, downside risks still persist with the imminent delivery of a significant volume of new developments covering both the residential and commercial sectors," the CBRE said in its Market View.

In Abu Dhabi's office sector, which has seen a steady decline in lease rates in 2011, further deflationary pressures should be anticipated over the next 12 months as significant new supply enters the market causing vacancy rate to rise, it said.

"Landlords are becoming increasingly flexible and realistic in their approach to leasing with rent free periods offered as standard market practice.

By year-end total office supply had reached 2.74 million square metres. Smaller office units remain in highest demand. Larger space requirements in excess of 1,000 square metres are less common. "As rental pressures have started to ease and as the local economy has improved, the market has witnessed some renewed interest from commercial occupiers seeking to either upscale or expand their operations," it said.

The review said Abu Dhabi's residential sector continued to witness modest rental declines. "However, delivery delays during 2011 have arguably helped to alleviate the onset of more aggressive deflationary pressures, and with this in mind, the outlook for the year is for further downside," it said.

"With a considerable development pipeline looming for handover during 2012, we anticipate that rents will continue to fall, although the rate of decline is likely to be more moderate than in previous years," CBRE said.

The capital's hotel sector witnessed a year-to-year growth in occupancy rates driven by tourist arrivals estimated at over 2.1 million hotel guests, mostly from Asia and the GCC. ING Investment Management said troubled countries in the Middle East are pouring money into the UAE, helping to shore up real estate activity.

The UAE's real estate sector appears to have "selectively bottomed", with key financials are poised for growth. Abu Dhabi's banks are well positioned to benefit, the fund manager said.

"In terms of UAE real estate, we believe the market bottomed in 2011 in some segments. While most of the price decline was witnessed in the first half of 2011 -- falling by six per cent in the year-to-date -- the money flow from politically troubled neighbours, into the more stable environment in the UAE, has actually helped stabilise some high-end residential segments of the markets," said Fadi al Said, head of investments and senior fund manager at ING Investment Management .

Leading real estate specialists said on Monday that investment in the UAE property sector by GCC nationals was growing as more banks return to property financing.

The property specialist observed that there has seen an upward trend of local buyers looking to invest in a property market, which many analysts believe is currently at the bottom, on the backdrop of increased property financing activity.

Cluttons observed a return to property financing by the banks since the downturn of 2008 when 70 per cent of lenders withdrew from this type of finance. Now 95 per cent of those lenders have returned to the market, famously led by Tamweel who returned to mortgage finance in November 2010.

© Khaleej Times 2012