Large-scale announcements helps build optimism in Abu Dhabi real estate sector

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Cluttons in Abu Dhabi: Residential rents increase in some locations — while overall, Abu Dhabi becomes a more affordable place to live

Abu dhabi

Major Highlights of  Cluttons Q1 2013 market report for Abu Dhabi:

  • A number of large-scale announcements in the past six months has resulted in optimism in the real estate sector
  • Abu Dhabi has become a more affordable place to live due to a fall in residential rents over the past 18 months caused by general oversupply and low demand
  • Residential rents in strong demand areas have increased by as much as 25% during the last six months, defying general trends across the market
  • The supply of both office and retail premises have increased over the last six months with further developments set to be delivered throughout 2013
  • KIZAD continues to dominate the industrial and logistics sector, and stability in supply will be key to its sustained performance

Cluttons, the real estate specialist which has enjoyed a dedicated Middle Eastern presence since 1976, has issued its Q1 2013 market report for Abu Dhabi. The Emirate remains firmly focused on diversification, and on raising the contribution of non-oil sectors, driving the private sector and encouraging the growth of new businesses.

Since October 2012 there have been a number of large-scale announcements, demonstrating Abu Dhabi’s commitment to its economy and real estate sector. The merging of developer giants Aldar and Sorouh, twinned with the announcement that Abu Dhabi’s Executive Council plans to add AED 330 billion into the economy and infrastructure over the next five years, have provoked a feeling of optimism in the real estate sector.  In September 2012, the government announced that all its employees and those of government-affiliated companies must live in Abu Dhabi, which has helped to drive residential demand.

For the most part, residential rates have fallen over the past 18 months due to oversupply and low demand, especially in older areas such as those located on Abu Dhabi Island. These areas continue to experience low demand and falling rents as people choose to upgrade to more modern developments. The fall in rents has helped to encourage people who commute to Abu Dhabi from Dubai for work, to relocate to the capital, especially as rents continue to increase in Dubai.

Since Q4 2012, the Abu Dhabi residential market has shown increased demand in areas offering community lifestyle with a high quality finish.  Values and rents have risen in these particular pockets of the city, defying the general trend across the Emirate.  For example on Saadiyat Island, rents have increased by 25% on two bedroom apartments, where the current average rent is AED 145,000 per annum, and Al Raha Beach has seen a 22% increase for two bedroom villas, which currently average AED 160,000 per annum.  Capital values, however, have not seen nearly the same growth levels as those in rentals, with villa prices experiencing a plateau and apartments seeing minor improvements of just 0.75% in value.

The general supply of office space within Abu Dhabi has increased over the last six months and demand for Grade A office premises has improved, keeping rents relatively stable. Aldar HQ and EtihadTowers are demonstrating 70% plus occupancy levels. Government bodies and their affiliated companies still form the majority of those seeking large office space while SMEs in the private sector have been helping to fill vacant space in existing stock. As new office stock is released onto the market, it is expected that older office buildings will experience downward pressure on rents, as corporate tenants look to relocate to modern premises.

The retail sector is expanding continually, with the extension of Al Wadha Mall, the opening of Deerfields Mall, Emporium Mall at Central Market and The Galleria at Sowwah Square. As further retail space is released to the market over the next two years, it is expected that retail rents will become more competitive as malls compete for business.

The general expansion of the Abu Dhabi International Airport is expected to boost both the retail industry and tourism sector. Abu Dhabi is developing a reputation as a regional tourism hub with the continued development of Yas and Saadiyat Islands. Yas Waterworld has recently opened, Yas Mall is under construction, and the redevelopment of Yas Marina will be ready just in time for the 2013 Formula One.  Construction works have now began for the Saadiyat Cultural District, which will comprise three world class galleries and museums, including the Louvre, The Guggenheim, and Zayed Museum.

The industrial and logistics market is trading at a premium to Dubai and the industrial zone KIZAD, the cornerstone of Abu Dhabi 2013, is leasing plots at a record-breaking rate as the infrastructure is almost complete.  Also close to completion is the Al Markaz large-scale warehouse project, which is progressing well and offering competitive prices.

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