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Abu Dhabi, UAEThursday 13 December 2018

Abu Dhabi rental declines to slow in 2018, says Core Savills

Market sentiment improving due to stable oil prices, higher government spending

Cluttons Middle East has offices in the UAE, Sharjah, Bahrain, Oman and Saudi Arabia. Kamran Jebreili / AP Photo
Cluttons Middle East has offices in the UAE, Sharjah, Bahrain, Oman and Saudi Arabia. Kamran Jebreili / AP Photo

Residential rents in Abu Dhabi are forecast to drop by around 4 to 7 per cent in 2018, albeit at a slower pace than last year as market sentiment improves on the back of stable oil prices and increased government spending, according to a new report.

“Although prices and rents are softening across the board, the pace is starting to decelerate,” real estate consultancy Core Savills said in its latest market update released on Tuesday. “With oil prices witnessing sustained upward momentum and government spending on the rise, there are positive forces driving up sentiment.”

Dubai and Abu Dhabi property markets have slowed in recent years in the wake of a three-year oil slump. Rental and sales prices in both emirates declined steadily, pressured by new supply coming to the market, muted demand and reductions in housing allowances.

Average apartment and villa rents in Abu Dhabi declined by 10 per cent and 7 per cent, respectively, in 2017 compared with 2016, while apartment and villa sales prices declined 10 per cent and 4 per cent year-on-year, according to consultancy Asteco’s fourth quarter 2017 market update. Across the board, further price softening is expected for the rest of 2018, analysts have said.

Although the rate of rental decline is slowing, the outlook for the Abu Dhabi residential market remains mixed, Core Savills said.

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In the rental market, villa districts continue to underperform with average annual rental declines over 17 per cent. This is due to a shift in occupier preferences prompted by reduced housing allowances, the report said. Apartment communities displayed relative resilience at 7 per cent drop.

Meanwhile, more than 9,200 units are scheduled for completion in Abu Dhabi in 2018 but actual handovers are expected to be less than 5,000 based on lower realisation rates, the report noted. Over the next three years, almost 60 per cent of upcoming supply will be concentrated on the Reem district and Yas Island, which is expected to add “further downward pressure on rents”.

However, on Saadiyat Island, which is also expected to see a significant increase in residential units' supply, rents are likely to be “somewhat resilient” due to its growing appeal as an arts and cultural hub, the report said.

“Despite oversupply concerns and ongoing dampened economic sentiment, many regional buyers continue to have faith in the long-term prospects of [Abu Dhabi],” said David Godchaux, chief executive of Core Savills.

This is driven by the fact that Abu Dhabi has the hydrocarbon reserves to fuel its future growth, while government measures towards diversification are starting to bear fruit, Mr Godchaux said.

“With geographical limitations of its core islands, supply levels are expected to gradually align with demand, making Abu Dhabi’s maturing market present long-term investment opportunities for the astute buyer,” he added.