The rule that calls for all public sector employees to relocate to Abu Dhabi has led to an increase in the average rents of new projects.
A report by property consultants Cluttons shows that rental prices in areas such as Raha Beach, Raha Gardens, Al Reem Island, Saadiyat and Al Reef have climbed by 10 percent to 25 percent over the last six months as a result of higher demand. With more leases set to expire in 2013, the trend of migrating from Dubai to Abu Dhabi is likely to continue.
According to the report, “the increases are linked to general market demand. This is being driven by an influx of people moving to Abu Dhabi from both Dubai and outside the region, as well as relocating within the city from older buildings, which lack equivalent facilities to the modern developments”.
The global financial crisis had hit the real estate sector hard in Abu Dhabi, with prices declining by over 50 percent. Property prices may drop further because of new supply, which do not have a high occupancy rate. As average rental prices have continued to decline, there has been renewed investor interest in new property developments. However, property prices in older buildings are expected to fall because of activity in good quality, new projects.
As the demand for older buildings decreases, landlords may be forced to lower asking prices because of higher vacancy rates. While some property owners may choose to sell their assets at a lower price to gain a nominal return on investment, others may seek to redevelop the buildings. Redevelopment of old buildings may help to get a better asking price and rent as the property becomes more attractive in the market.