Abu Dhabi: Rental rates in Abu Dhabi’s prime residential units and rental rates in the emirate’s affordable homes are moving in opposite directions.

For prime units, rents are on the decline, having dropped five per cent year-on-year in the third quarter of this year on the back of increased job cuts and slower economic growth in Abu Dhabi.

According to the latest report by CBRE, a real estate services and investment firm, rents fell by around two per cent on a quarter-on-quarter basis. This is due to lower spending by both corporate tenants and expatriates.

However, it’s a different story in the affordable homes segment, which saw a rise in rental rates during the third quarter.

“Despite the overall drop in rents, some affordable yet relatively inferior housing products have still managed to demonstrate modest rental growth or have remained flat. This underlines a general market shift towards affordability. With expatriate residents most susceptible to deflationary risks and company downsizing, we anticipate further migration of tenants to locations such as Al Reef Downtown and affordable mainland locations,” the CBRE report said.

Limited supply of affordable units in Abu Dhabi is also likely to keep rental rates insulated against the current market downturn, meaning mid-market rentals are unlikely to see too much fluctuation on the short term, CBRE said.

On average, annual rentals for low to mid-end properties in the city centre were priced at Dh40,000-Dh72,000 for studios and Dh55,000-Dh120,000 for one-bedroom units.

“We expect to see further declines in the residential sector in the coming quarters as continued economic uncertainty and downsizing of the workforce culminates in weaker demand fundamentals.

We also anticipate further migration towards the emirate’s more affordable residential locations as consumer confidence in further impacted and tenants consider a range of cost-cutting measures to help manage mounting market and economic risks,” CBRE said.

This means even further fragmented performance in the property sector, with declines in prime units and stronger demand for mid-market units.

The report echoes similar concerns highlighted by JLL, a property consultancy, in its third-quarter report, which said increased jobs cuts in both the private and public sector have taken a toll of Abu Dhabi’s property market.

JLL said the market continues to face downward pressure, with average prime rents for two-bedroom apartments falling six per cent year-on-year.

“While supply remains under control, increasing vacancy rates are placing downward pressure on residential rents and sales prices. Residents in Abu Dhabi are increasingly looking for cheaper and smaller options owing to further job cuts and reduction in employment allowance and benefits,” said David Dudley, international director and head of Abu Dhabi office at JLL.

Meanwhile, Edward Carnegy, director and head of Cluttons Abu Dhabi, another property consultancy, said that job cuts across various industries are creating a sentiment of uncertainty even for those who still have their jobs. This trend has been on the rise over the past few quarters, and is leading to a flight to affordable units.