Retail and office rents remain stable but quietly move in favour of occupiers, according to JLL
Abu Dhabi housing and hotel markets decline further
Residential rents and sales prices in Abu Dhabi declined in the third quarter of 2017 on the back of economic tightening and the release of new housing stock, according to real estate consultancy JLL.
Apartment sales and rental prices in the capital both dropped 13 per cent year-on-year over the quarter, while sales prices declined 13 per cent year-on-year and rents by 9 per cent, JLL’s latest market overview found.
The decline was slightly less on a quarterly basis – at 3 per cent and 5 per cent for apartment sales and rents, respectively – and 8 per cent and 1 per cent for villa sales and rents, respectively.
Still, the emirate’s residential market faces ongoing pressure due to a continued increase in vacancy rates resulting from new supply completions during a period of job losses and cuts in housing allowances, JLL noted.
Approximately 550 units were delivered in the third quarter 2017, bringing the total residential stock to around 250,000 units. With a further 3,000 units scheduled to enter the market in 2017, residential vacancies could increase further in 2018, causing further rental declines, the consultancy said.
New deliveries in the third quarter included Al Jazeera Tower on the Corniche, the C34 tower in Saraya and Abu Dhabi Marina Development in Al Bateen.
Craig Plumb, head of MENA research at JLL, said the downwards trend would continue into the fourth quarter of 2017.
“Rents are low across the board, which is good news for tenants,” he said. “We expect this trend to continue, probably at the same rates, as we see no reason to suggest price stabilisation.”
He added: “Oversupply is not the problem in Abu Dhabi – it’s lack of demand, due to job cuts, corporate restructuring and reductions to housing allowance. So affordability for tenants is crucial and they are looking at cheaper options, of which good quality ones are not widely available.
“There are no signs of the market bottoming out yet.”
The emirate’s hospitality market registered an 8 per cent drop in average daily rates (ADRs) and a 2 per cent drop in occupancy levels compared to the same period last year, the report showed.
As a result, revenue per available room declined by 11 per cent in the year to August 2017 compared to the same period last year.
However, the final quarter of the year is traditionally a strong period for Abu Dhabi’s hotel market and this trend is likely to be strengthened by the planned opening of the Louvre museum in November and the Formula One Grand Prix, according to JLL.
Meanwhile, Abu Dhabi’s office and retail rents remained “relatively stable” at 0 per cent year-on-year change for both sectors, supported by few major completions taking place during the quarter, according to the report.
However, the market is increasingly moving in favour of occupiers at a time of weaker demand. Mall operators, for example, have been offering increased incentives such as flexible leasing terms, early break clauses, rent-free periods and contributions to fit out, to attract and retain retailers.
The delivery of additional supply is expected to place further downward pressure on office and retail rents over the next 12 months, particularly in secondary buildings.