The real estate market in Abu Dhabi witnessed a selective recovery during the first quarter as prime residential rents increased by 8 per cent in selected higher quality schemes, while rents in secondary quality residential stock continued to fall, said a report.

Overall real estate markets remain in over-supply, with additional new supply still in the pipeline leading to further increases to market-wide vacancy rates. However, there is a significant distinction between high grade and low grade product, said property expert Jones Lang LaSalle in its Q1 report covering the office, residential, retail and hospitality market segments in Abu Dhabi.
 
On the residential sales market, JLL said there was evidence of an increased volume of residential sales transactions and approximately 8 per cent increase in residential sales prices for prime stock.  
Similarly the prime residential rents increased by 8 per cent in selected higher quality schemes. Conversely, rents in secondary quality residential stock have continued to fall, stated the JLL report.

The increase in prime residential sales prices over the past quarter can be attributed to a wide range of factors. Abu Dhabi’s market cycle is at a time lag to Dubai, and therefore the current recovery in Dubai will certainly influence Abu Dhabi’s recovery. Abu Dhabi, like Dubai, is also benefiting from the UAE’s status as a safe haven destination following political unrest in the wider region, the report said.

Furthermore, as government progresses its major economic development, infrastructure and city building initiatives, this has a major impact on purchaser demand – as increased job stability and greater liquidity leads to more people looking to buy property rather than rent, together with expectations of value growth from a future upswing, it added.

There may be an element of increased demand stemming from the government regulations to reduce the level of commuting from Dubai – by encouraging Abu Dhabi employees to live in the emirate to qualify for housing allowances, the report pointed out.

However, it is difficult to separate this from other factors. Better community facilities and amenities now being available and greater critical mass within masterplanned areas is leading to better ‘liveability’ and demand for product, said the JLL report.

Job growth is starting to materialise from major infrastructure and economic development projects – for instance the expansion of Abu Dhabi Airport has led to increased demand for apartments at Al Raha Beach. Again, the real estate that will perform well is the product which is functionally designed, well located, well managed and most aligned to end-user requirements, the report stated.

Commenting on the report, David Dudley, the head of Abu Dhabi office at JLL, Mena, said: “The first quarter has been an encouraging start to the year. It seems the worst is now behind us and we are turning the corner. While not a full market recovery, we see that recovery is at least in sight for prime real estate.”

"Despite the large supply of residential product that has been recently delivered, there remains healthy demand for well designed stock, due to the relatively poor quality of many of the existing developments. Good quality developments have experienced healthy absorption and achieved premiums," he noted.

A further point is a greater distinction of product, with only higher grade stock benefiting from an increase in volume of transactions and values, said the JLL report.

In the previous upswing, dominated by off plan sales, there was limited differentiation of product. The reality is that many projects which had been conceived and marketed as high grade stock are were not delivered as such.

Now that stock has actually been completed, purchaser demand and price growth is for residential product that meets end-user requirements – for instance functional design and layout, high quality specifications, a high level of amenity and facilities, sufficient car parking and high quality property management.

According to JLL, the residential stock increased by almost 2,000 units over the quarter. Additions to supply included Al Bateen Park development in Al Bateen, Nation Towers on the Corniche, Al Reef near the Airport and Sea View on Reem island.

Commenting on the report, Dudley said: "While it is encouraging to see the market moving upwards again, it is important to note that these improvements do not represent a market-wide recovery, but relate to selected high quality developments – with performance continuing to diverge between high grade and low grade product."

"However, this is certainly positive news for the market, indicating the first signs of recovery and a maturing market," he added..

While developers have scaled back projects, additions to supply remain significant, with an over-supply across most asset classes. That said, recovery is now in sight particularly for prime real estate – as  performance continues to diverge between high grade and low grade product, said the report.

The overall office market remains over-supplied, pending further progress with government economic development initiatives to diversify the economy and generate new jobs. However, prime office rents have started to stabilize, with prime office rents having remained stable the last three quarters, said the property expert.

JLL said new supply entering the office market has increased the total stock to approximately 2.9 million sq m. Major additions to supply in Q1 included Al Bahr Towers adding a total of 26,000 sq m GLA. There are currently some major pre-commitments for office space awaiting handover.

A significant level of further office supply is due for delivery later in 2013, which is expected to place downward pressure on average rents, particularly for secondary quality assets. This will also drive occupier relocations, improving gross take-up rates. On the other hand prime office rents have started to stabilise, said the report.

Retail stock too increased by around 11,600 sq m of GLA in Q1, owing primarily to the opening of Al Muneera and Al Zeina retail components. An estimated 349,000 sq m of retail GLA could be delivered to the market  over the remainder of  2013 in a mix of stand alone malls and retail space within mixed use projects.

The retail supply pipeline is dominated by regional malls including Yas Mall, Sowwah Central and Saadiyat District.  In the near-term there will be significant additions to the retail elements of large mixed use developments – including The Collection at the St. Regis on Saadiyat Island, the Galleria on Sowwah Square, Nation Towers and the Emporium at Central Market.  

On the hotel scenario, JLL said the first quarter saw positive news with increases in occupancy, and average-length-of-stay. Two new hotels, The Ritz Carlton and Premier Inn, have added 774 rooms, placing continued downward pressure on Average Daily Rates (ADRs), said the report.

Craig Plumb, Head of Research for Jones Lang LaSalle in MENA, further added: “Abu Dhabi may not see a full recovery in 2013 but the government is taking the right steps for a sustainable recovery. Recent capital injections into infrastructure will boost the demand for real estate in the longer term, as will requirements for government employees to live in the emirate."

"However, given the high levels of current supply, the market is likely to remain tenant favourable throughout 2013," he added.

The JLL said the key trends for 2013 will be a continued divergence of the market between high and low grade stock – with high quality developments meeting end user requirements achieving stabilization, or improved performance, and poorer quality stock continuing to decline.

The Abu Dhabi market, it said, is typically 12 - 18 months behind that in Dubai in terms of its position on the property cycle.

"Given that the Dubai market is now witnessing recovery across all sectors (residential, office, retail and hotels), for the first time since 2008, the current signs of stability in Abu Dhabi are likely to be translated into a more broad based recovery during 2014 / 2015," the report added.-TradeArabia News Service