Abu Dhabi, too, will face the supply pressure on rents

Dubai: Pressure on rents from the rush of new homes being completed is not just a Dubai story – much the same is happening in Abu Dhabi as well. Nearly 5,000 residences were delivered in Abu Dhabi last year compared with 22,000 units, according to the new update from JLL.

On the face of it, there is a wide differential between the two cities – but this is the first time in so many years that Abu Dhabi is actually seeing these many new home completions. If the same happens this year – about 10,000 units are expected to be ready – this will have a telling impact on rents.

If this rate [of supply] carries over the next few years, the market will remain oversupplied ... Residential vacancies are anticipated to increase further causing further rental declines.

- JLL report

The 5,000 units of last year meant that 65 per cent of the promised supply actually got completed, whereas in previous years, the actual deliveries used to average about 35 per cent of what was expected.

Now, if 60-70 per cent delivery is maintained this year as well, it means residents in Abu Dhabi have a lot more of stock to pick from. This is exactly the situation in Dubai, and which has forced rental declines in each of the last two years. In 2018, the drop in apartment rents was at 8 per cent year-on-year.

“If this rate (of supply in Abu Dhabi) carries over the next few years, the market will remain oversupplied which could dampen any potential improvement in prices and rental levels,” JLL’s report adds. “Residential vacancies are anticipated to increase further causing further rental declines.

“The softening market conditions have forced vendors to decrease asking prices to attract the reduced level of demand. This has resulted in both homebuyers and tenants having more bargaining power when it comes to negotiating terms and conditions, rental rates, and sales prices.”

Some of that was evident last year too, with apartment rents in Abu Dhabi down 11 per cent on a year-on-year basis. Much of the new supply will again be on Al Reem Island and in Saadiyat.

What of the supply situation in Dubai this year? JLL places the top end of the forecast at 60,000 units, but adds the rider that the actual completion numbers to be less than 50 per cent, going by the average in each of the last five years.

From a developer perspective, “There are concerns of supply increasing ahead of demand with anecdotal evidence suggesting an oversupplied market resulting in further downward pressure on both prices and rentals.”

This is why a lot rests on how the recent initiatives announced by the government play out. JLL cautions that it could take time to bear the intended results.

“The benefit of these initiatives is unlikely to have an immediate impact and 2019 is expected to remain a challenging year for most sectors of the real estate industry,” said Craig Plumb, Head of Research at JLL MENA, in a statement.