Abu Dhabi house rents get cheaper

There was a 12.6 per cent fall in average rents across Abu Dhabi's residential investment areas in 2016, says Cluttons.

Mithun N., a design manager in Abu Dhabi, is a happy man today. He was once paying up to Dh150,000 in annual rent for a two-bedroom apartment on Reem Island in Abu Dhabi.

"Today, that has gone down to circa Dh120,000 and above, with a few incentives thrown in by landlords as well. This rent reduction obviously helps me to save and remit more money home," says Mithun, who is now looking to shift to a one-bedroom apartment in the same upscale neighbourhood, where such units cost Dh95,000 to Dh100,000 to rent per year.

This trend is playing out across most upscale Abu Dhabi communities, with landlords starting to offer more flexible deals to attract occupiers.

There was a 12.6 per cent fall in average rents across Abu Dhabi's residential investment areas in 2016, says real estate consultancy Cluttons. High-end villas on Saadiyat Island (-28.2 per cent) registered the most significant decreases in average rents last year. The downward pressure has lingered into 2017, with average rents dropping by a further 2.3 per cent during Q1, which leaves rents 15 per cent lower than this time last year.

"Landlords are now demonstrating a greater amount of flexibility around tenancy terms, with many agreeing to shorter than normal break clauses, while also increasingly willing to accept offers below advertised rates. Other service providers are also coping with the market conditions. For instance, Khidmah is now offering a range of incentives, including a free month of rent, shopping vouchers and is also accepting rental payment in four cheques instead of one, which had been the norm previously," says Edward Carnegy, head of Cluttons Abu Dhabi.

According to a Cluttons report, wide-ranging redundancy programmes in both the private and public sectors stemming from weaker economic conditions are adversely impacting overall demand levels.

New supply
Ben Crompton, managing partner, Crompton Partners Estate Agents, said large-scale government layoffs in Abu Dhabi, however, have meant significant downward pressure has been brought to bear on the market in the capital.

"Abu Dhabi is still seeing significant rental drops in some areas where new supply is coming online, such as Reem Island and the Corniche. Other areas such as Raha Beach are holding up much better."

Abu Dhabi's residential rents are likely to continue contracting throughout 2017. Cluttons estimated that average rents are likely to drop five per cent to seven per cent this year. The top end of the market is expected to register more substantial declines.

Faisal Durrani, head of research at Cluttons, said the supply-demand equation is out of kilter, with supply levels likely to continue edging ahead of demand as the year progresses and more schemes complete.

"Larger unit types and some higher-end residential developments are seeing more rental deflationary pressures compared to low-mid level housing units in central locations," observed Arlene Jimenea, senior research analyst, CBRE Middle East.

In terms of home sales, 2016 saw capital values across Abu Dhabi's residential investment areas decrease by six per cent on average. Sea view villas on Saadiyat registered a steep 19 per cent drop during 2016, leaving average values at Dh1,800 per square foot. Apartments on Reem Island (-11.1 per cent) experienced the second largest correction last year, dragging average prices down to Dh1,300 per square foot.

Weakness persists
The general weakness in the sales market has persisted into 2017, with a further 1.9 per cent drop being registered during Q1 2017, which has dragged the annual rate of change to -7.6 per cent.

Carnegy said: "Anecdotal evidence shows that organisations continue to trim senior-level executive positions, which are a key source of requirements for high-end homes. In other cases, companies are removing housing allowances to cope with the financial pressures, which is making it harder for potential buyers to purchase a property. That's why this segment of the market is currently experiencing the most significant price corrections."

Cluttons forecasted Abu Dhabi's residential sales values to fall by between eight per cent to 10 per cent this year.

Abu Dhabi's office market is also experiencing a widespread softening of rents. During Q4 2016, prime (Dh1,850 per square metre), secondary (Dh1,050 per square metre) and tertiary (Dh750 per square metre) rents all declined by Dh50 per square metre.

Cluttons' research shows that the liquidity squeeze faced by the public sector as a result of the fall in oil revenues has resulted in the cancellation, or delay, of a multitude of high profile projects across Abu Dhabi. As a result, a number of businesses reliant on public sector spending are being forced out of the market due to a lack of lucrative contracts, which is adding to the diminished number of enquiries and requirements.

Carnegy explained: "The city's Grade A market is beginning to show cracks, with rents in most prime buildings dipping throughout 2016. Some landlords have begun to respond reactively to the conditions by offering rent-free incentives and being open to negotiating headline rents, depending on the covenant strength of potential occupiers."

- deepthi@khaleejtimes.com