Office, home rents fall in Abu Dhabi during Q3

Abu Dhabi is likely to see more rent declines in the coming quarters and migration towards affordable residential locations as tenants consider a range of cost-cutting measures.

The weak employment market and slower economic growth in Abu Dhabi have resulted in a fall in housing and office rents in Abu Dhabi in the third quarter, according to real estate consultancy CBRE.
The ongoing cost optimisation measures have resulted in job losses, a tightening of corporate packages and reduced housing allowances and salaries. This has translated into declining rents for larger units while smaller units remain insulated as tenants choose to downsize or select more affordable locations.
During the third quarter, average market rents in Abu Dhabi fell by around two per cent quarter on quarter, taking the year-on-year decline to five per cent.
Luxury residences, favoured by high-income expats, have been most affected, seeing an average rent drop of three to five per cent over the second quarter.
"Despite the drop in overall rents, more affordable community housing products have managed to demonstrate modest rental growth, or have remained flat. This underlines a general market shift towards cost sensitivity. With expats most susceptible to company downsizing, we anticipate further migration of tenants to locations such as Al Reef Downtown and affordable mainland locations," said Mat Green, head of research and consulting for the UAE at CBRE Middle East.
CBRE estimates further rent declines in coming quarters and migration towards affordable residential locations as tenants consider a range of cost-cutting measures. High-end apartments are likely to suffer further rent declines while mid-market units will remain better insulated as strong demand for affordable units prevails.
 
Commercial rents
Office rents in Abu Dhabi also continued to slide in the third quarter amid weakening demand. This is due to a growing number of businesses considering actions to streamline operations, including staff reductions, office downsizing and sub-leasing of excess accommodation.
Secondary office rents continue to slide with a drop of around two per cent observed during the period. The development pipeline is heavily skewed towards inferior quality products and locations.
Meanwhile, shell and core office units in Grade A buildings are priced at an average of Dh1,850 per square metre. While these rates have been stable in recent quarters, there are signs that market pressures may soon result in deflation of Grade A rents.
"Landlords are now showing greater flexibility and a willingness to negotiate with major tenants. There is a noticeable gap between landlords' quoting rents and actually achieved rents," said Green.
It is a challenging period for Abu Dhabi's hospitality market, with declining revenue and room rates. In addition to the typically quiet summer period, the sector is also weighed down by weaker corporate demand.
According to STR Global, Abu Dhabi's year-to-date occupancy rate to September 2016 was recorded at 70.2 per cent, down by around three per cent from the same period last year.
The year-on-year average daily rate also dipped, falling from Dh488 per room per night in September 2015 to Dh440 per room per night in September 2016. Lower occupancy rates and the continued softening of ADRs have pushed down revenue per available room by close to 12 per cent, as rates fell from Dh352 per room per night in September 2015 to Dh310 in 2016.
Between 2017 and 2018, close to 2,500 new hotel and hotel apartment keys are scheduled to be completed. The majority of the new rooms will be of five-star quality which could lead to a sustained period of lower rates for the upscale and luxury segments.
- deepthi@khaleejtimes.com

• Abu Dhabi