Residential sales in Abu Dhabi have witnessed a steep fall across the board, and the rents have continued to drop in the first quarter, however, the prime apartments in the UAE capital were in good demand, said a new report.

This year will prove challenging for the Abu Dhabi residential market as more stock comes onto the market, including the Al Rayanna project which will release 1,800 apartments this year and the Al Reef Downtown which will release 1,500 apartments, said property expert Cluttons in its report.

Several high quality key commercial projects came online in the last half of 2011 including Etihad Tower, Sowwah Square, Capital Gate and Aldar HQ, raising the bar for commercial space in the city, the report said.

Apartment rental values have dropped between 6 and 10 per cent on some projects and will continue to soften throughout 2012.

However, demand for residential property still remains strong and the recent announcements by the government to resume landmark projects, and major companies posting significant profits has had a positive effect on expectation in general and should continue to reenergise the economy throughout the year, it stated.

Abu Dhabi Island has been attracting strong interest as it became more affordable. Apartments on the St Regis development on Saadiyat Island are also proving popular.

The short supply of retail facilities at many of the new residential developments is slowly being addressed at some developments such as Marina Square, but is still an issue for many projects, said Clutton which has enjoyed a dedicated Middle Eastern presence since 1976.

In its Q1 report for Abu Dhabi’s commercial market, Clutton said Abu Dhabi Executive Council had announced the resumption of many previously stalled projects including the long-awaited Louvre and Guggenheim museums on Saadiyat Island, and the new terminal for Abu Dhabi International Airport.

This promises a positive outlook for 2012 as major developers like Aldar and Sorouh post improved profits for 2011. Sorouh ended the year with Dh383 million in profit, up from Dh16.1 million in 2010. Aldar also posted significant profits of Dh642.5 million.

The UAE capital has also seen a shift in the way residential landlords do business, as proactive landlords have started approaching brokers to let their residential properties, the property expert said in its report.

Developers are also retaining brokers and paying agents commissions as an incentive to lease their properties, it added.

Commenting on the office sector scenario, Clutton said this section received a boost from the municipality’s recent announcement that it would no longer issue permits for residential villas to be used for commercial purposes.

This forced many companies to move to purpose built commercial space, with Prime Grade A office space proving the most popular, in particular Sowwah Square which has been successful at attracting both new tenants and those relocating.

Very few landlords are seeking to achieve rents above Dh2,000 per sq m per annum in 2012. New build quality stock is coming to the market at Dh1,400- 1,600 per sq m per annum.

A further fall in commercial rents across most submarkets throughout 2012 is likely, with the exception of Prime Grade A space, bringing rents down to more realistic levels. Greater flexibility and incentives will be important and rents should stabilise by the end of 2012, the report added.-TradeArabia News Service