Abu Dhabi rents may 'increase by up to 30%' in some areas after launch of rental index

Landlords in Abu Dhabi are adjusting rents following the launch of the UAE Capital’s first official rental index. New tenants may find a spike of up to 30 per cent in some areas where rates are below the market average, industry experts said. This is due to a shortage in existing supply and high demand from new tenants.

The index, however, will also help tenants negotiate favourable rental terms in areas where rents are higher than the index figures.

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On Tuesday, real estate regulator Abu Dhabi Real Estate Centre (ADREC) launched its first official rental index covering Dhafra, Abu Dhabi and Al Ain regions. Through the index, property buyers and tenants can check indicative rental values for housing units, depending on their location and number of bedrooms.

In July, the Abu Dhabi rental market continued to record strong activity, particularly in upscale apartment and villa locations. According to real estate consultancy Asteco, average apartment rents saw modest quarterly and annual increases of 1 per cent and 2 per cent, respectively.

“However, select developments/areas registered more substantial growth, with quarterly increases nearing 5 per cent and annual growth reaching up to 10 per cent,” it said.

Tenancy contract renewal

For existing tenants, the increase may not be immediate as Abu Dhabi has a 5 per cent cap on rent hikes on renewals.

As reported by Khaleej Times this month, the UAE Capital’s real estate is enjoying full occupancy in some areas with certain properties maintaining waiting lists for prospective tenants, especially in the luxury market segment.

Rents in some of the popular localities, such as Saadiyat Island, have seen a major spike in the past year due to high demand from new tenants settling in the emirate. Abu Dhabi's population reached 3.8 million last year, becoming the most populous emirate in the country.

Prathyusha Gurrapu, head of research and consulting at Cushman and Wakefield Core, said that typically, new leases are anchored on the open market and rents can be agreed upon by the landlord and tenant.

“For rent hikes in renewals, as per Law No. 20 of 2006 (Article 16), the landlord may not increase the rent specified in the contract except once each year by no more than five per cent of said rent. It is permissible, by the decision of the chairman of the Executive Council, to increase, decrease, or cancel this percentage as deemed appropriate, and individuals concerned may resort to the committee if the landlord has exceeded the defined percentage,” she said.

Moderate corrections

Evgeny Ratskevich, CEO of Metropolitan Capital Real Estate, said the index would reduce discrepancies between actual rents and fair market values.

He said: “Also, for properties that are currently priced above or below the market average, adjustments will occur to bring them in line with the index. This could mean some rents may decrease if they are currently too high or increase slightly if they are too low, but these changes are expected to be gradual and balanced.”

“While the rental index may help identify areas where prices are significantly out of line with market norms, it’s unlikely to cause dramatic shifts in rental rates. Instead, it can serve as a valuable tool for both tenants and landlords to negotiate fair prices and make informed decisions,” he added.

Svetlana Politova, chief operating officer at Whitewill Abu Dhabi, said the rental index was likely to stabilise rents which can lead to more balanced rental agreements.

“In areas where rents were previously over or undervalued, adjustments may occur. However, the index's primary function is to provide accurate data for fair pricing rather than directly influencing rent levels. Thus, any changes in rent will likely be modest and driven by market corrections rather than a dramatic shift up or down,” she said.

Politova added that areas with significant discrepancies between actual market rents and previously perceived values, such as emerging neighbourhoods or those with recent infrastructure developments such as Al Reem Island, may see insignificant changes of up to 5 per cent.

“For instance, undervalued areas could experience rent increases as the index highlights their true market potential, while overvalued areas might see slight decreases to align with accurate data. Saadiyat Island as a potential area where the launch of a residential rental index could lead to price changes, too, particularly considering the presence of overpriced units.”

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