Staff Report

Dubai: Abu Dhabi’s residential rental market will remain under pressure through the rest of 2018, irrespective of how many new homes are likely to be delivered during the period. Estimates suggest that a further 7,000 units are in the pipeline for handover this year, mainly within Reem Island, Yas and Saadiyat.

“However, a significant proportion of this supply could be delayed at the final stages of approvals and handovers,” says a new report from JLL.

The first three months saw about 2,000 new homes delivered, which include the Leaf Tower, the Post Office Tower, and Boardwalk Residences (on Reem Island).

“The residential market continued to face downward pressure with rents and prices registering further declines on both a quarterly and an annual basis,” JLL reports.

The property consultancy reckons that apartment rents in the city are down an average 10 per cent “due to the continued increase in vacancy rates and new supply completions during a period of job losses and cuts in housing allowances”.

More worryingly for landlords, vacancies are likely to increase right through 2018 and adding to the rental drops.

But not all locations and properties are facing the same degree of stress. Al Reef was the “only community recording a drop in villa sales prices at an average rate of 2 per cent”, according to a 2018 first-quarter update from Asteco.

“Apartment sales prices remained broadly unchanged over the quarter in the majority of locations, with the exception of Marina Square (minus 5 per cent), Reef Downtown (minus 6 per cent) and Sun & Sky Towers (minus 6 per cent), which faced increased competition from new off-plan developments offered at attractive rates and favourable payment plans,” the Asteco report notes.

“Although healthy demand for high-quality, off-plan and newly delivered projects continued, lower-end residential units remained under pressure throughout the first quarter of 2018,” said John Stevens, managing director of Asteco.

“As a result of the delivery of new supply during a period of restrained economic growth and subdued market sentiment, we have seen an increase in vacancy rates across all residential unit types.”

Of the upcoming supply, just over 2,500 units are earmarked for Al Reem Island, 1,800 apiece on Yas and Saadiyat Islands, and more than 1,650 units on the mainland.

The first quarter saw launches of the Al Fahid Island master development (by Al Nahdha Investment) and the Reflection towers on Reem Island by Aldar. Aldar has now raised the ante by announcing the Dh10 billion Al Ghadeer development on the Abu Dhabi-Dubai border, with construction of the first homes set to start in the second-half of the year.

Correction pressures stalk other property classes

Demand for new office space in Abu Dhabi remains weak, though lease rates remained relatively stable right through the first quarter.

“The delivery of additional supply at a time of weak demand, as well as corporate restructuring are expected to place further pressure on rents over the next 12 months, particularly within secondary buildings,” the JLL report notes.

Within the retail sector, thankfully, a lack of new supply has meant some breathing space for operators. However, malls are offering “extensive” leasing incentives.

In the city’s hospitality space, there was a 6 per cent increase in average occupancy levels during the period, but was accompanied by a 16 per cent hit on average daily rates (ADR), JLL reports.