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Abu Dhabi apartment rents drop 5pc

Abu Dhabi, April 14, 2010

The apartment rents in Abu Dhabi have fallen by at least 5 per cent in the first three months and are expected to soften further as more new properties come into the market, said a report by leading property services company Asteco.

Affordability has put a ceiling on villa rents, with declines in rents particularly at the upper end of the market, and demand for office space remains subdued with prospective tenants adopting a “wait and see” strategy in expectation of further price reductions, the report added.

Asteco's report on the Abu Dhabi property market for the first quarter of 2010, provides a timely backdrop to the Cityscape Abu Dhabi investment and development show, which opens on Sunday, attracting thousands of local, regional and international industry professionals, eager to take the pulse of the Abu Dhabi real estate market.

Commenting on the report, Asteco Property Management CEO Elaine Jones said 2010 will be a “ground-breaking year” for the Abu Dhabi real estate market with the first phases of investment area stock being delivered.

“This new ‘freehold’ supply, along with many sizeable build-to-lease projects on and off the main island will bring a significant quantity of new supply with a total close to 20,000 new homes by the end of the year,” she added.
“This will bring movement to the market and, for the first time in Abu Dhabi, some truly high-end residential developments,” Jones remarked.

The apartment rents in Abu Dhabi have fallen on average by between 5 to 15 per cent over the last three months and with significant quantities of new supply under construction this downward trend is set to continue, the Asteco report stated.

“A trend of falling rents strongly contradicts the pent-up demand and under-supply argument. Asteco estimates that as many as 15,000 apartments will be delivered to the market by the end of 2010, with over 9,000 of these units being built specifically to lease,” the report added.

In addition, a substantial quantity of the new investment area stock due to complete in the next three to six months on Al Reem Island is likely to become available to lease, the report said.

A large proportion of the pent-up demand for housing continues to be diverted to Dubai, demonstrating how closely interconnected both markets have become, Asteco remarked.

Asteco said it has seen low leasing take-up rates amongst new developments which have been handed over in the last three months or are due for imminent completion.

“This is due, principally, to a mismatch between landlords’ price expectations and prospective tenants’ budgets,” the report added. 'Landlords have tended to test the market with initial high quoting rents to gauge demand and have found downward price adjustments to be necessary,' it said
 
Of 15,000 apartments being delivered this year, around 4,600 will be completed in the first phases of Al Reem Island (Marina Square and Shams Abu Dhabi) in the next three to six months, with a further 511 units due to complete at Al Bandar, Al Raha Beach within the next three months.

At present, demand continues to be entirely focused on these close-to-completion developments, said Asteco.

“The delivery of new stock is a good test of market appetite and, as this new supply is absorbed, will define key rental benchmarks that should lead to pricing adjustments amongst existing stock, reflecting variances in location and quality. In addition, these rental benchmarks should assist other landlords with new buildings in terms of their pricing strategies,” Jones observed.

In terms of off-island villa communities, with the majority of the villas at Golf Gardens having been handed over, Asteco’s research shows that around 70 per cent of these villas are being made available for rent, with the remaining 30 per cent occupied by the owners.

Moreover, approximately half of the villas which have been rented out to date are company contracts, the report added.

At the other end of the market, Asteco said the handover of the first phases of Al Reef has brought a new dynamic in the form of expatriate landlords.

“Given that these new landlords have mortgage commitments, their desire to secure tenants early and avoid vacant periods has already seen rental prices fall from original quoting levels,” the report noted.

“As more phases are handed over in the next few months, rents in this development are likely to come under increasing pressure to drop further,” it added.

On an average, Asteco said sale prices for apartments in Abu Dhabi had shown decreases from Dh50 to Dh100 per square foot (3 to 7 per cent) over the last three months.

“This reflects the increase in the number of listings coming to the market and the fact that some investors with a motivation to sell are more willing to accept lower prices and exit,” the report added.

In the Abu Dhabi office sector, Asteco said that with little open market transactional evidence it is difficult to gauge current market rents.

“It is clear, however, that current supply and demand dynamics prevailing in the market dictate that rents are under significant pressure to fall.” With demand subdued, Asteco says tenants are generally adopting a “wait and see strategy” in expectation of further price reductions as more supply enters the market.
 
In Al Ain, Asteco said the overall apartment and villa rentals have fallen over the last quarter by close to 10 per cent as new supply comes to the market and demand is slightly reduced, especially as some commuters working in Dubai have chosen to move back to Dubai due to falling rents.-TradeArabia News Service




Tags: abu dhabi | Asteco | drop | Apartment Rents |

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