Abu Dhabi property market softens in economy slowdown

Due to recent global economic uncertainties, potential property buyers in Abu Dhabi have induced a ‘wait and see’ attitude, which has resulted to real estate prices softening in the emirate.

According to global real estate services company Cluttons in its Abu Dhabi Property Market Snapshot for Winter 16/17, Abu Dhabi’s real estate market has experienced further softening in both the residential and office markets.

Faisal Durrani, head of research for Cluttons said, “We have seen a notable acceleration in the residential market correction as a result of increasing global economic uncertainty and the protracted oil and gas sector’s decline, building during Q3 and being further exacerbated as we wait to understand the full impact of Mr Trump’s election as President of the United States of America.”

“This, combined with continued market softening across residential and office markets has led to nervousness amongst investors, with many reluctant to commit to purchases until they see signs of stabilisation.

“As a result, we have left our forecasts unchanged with a 10 percent fall in villa values this year likely to be followed by a decline of around 7 percent in 2017. Apartments will likely be less severely impacted with a decrease of 4 percent this year and a further 2 percent to 3 percent fall in 2017. The villa rental market will continue to bear the brunt of the widespread slowdown in the creation of senior level jobs, with a 20 percent drop this year likely to be followed by a 7 percent to 8 percent drop next year,” he added.

Residential market

In the third quarter, Abu Dhabi’s residential market continued to soften with the fall in capital values (-2.4 percent) outpacing rental declines (-1.0 percent). On a year to date basis however, rents across the city’s residential investment areas are down by 9.4 percent, while home values have fallen by 5.2 percent.

Edward Carnegy, head of Cluttons Abu Dhabi, said, “Demand has continued to wane over the course of the year, with the primary driver of requirements, the oil and gas sector, still shrinking, and widespread redundancies continuing. Undoubtedly this has undermined demand for property, both for purchase and rent. These factors, combined with the ‘wait and see’ approach of investors, has been most felt by the top end of the villa market.”

Sea view villas on Saadiyat Island (Dh1,850 per sq ft ($503)) for instance, have decreased in value by nearly 18 percent over the first nine months of 2016, positioning it as the weakest performing market this year, behind mid-range apartments on Reem Island, which are down -11.1 percent.

For Abu Dhabi’s rental market, the top-end villa market has borne the brunt of a diminishing rate of creation of senior level positions in the capital, while housing allowances have also continued to slip across the board.

Like the sales market, high end villas on Saadiyat Island have on average registered a near 25 percent drop in rental rates between January and September, but early indications from Q4 suggest the rental declines are persisting, which will push the rental falls in this affluent submarket lower still.

More positively for landlords, areas such as Al Reef Downtown, which is perceived to be more affordable than other areas in the city, posted a 16.1 percent rise in average rents, leaving them at a little over Dh108,000 per annum and bringing them in line with average rents at Hydra Village (Dh105,000 per annum). Although it was last year’s stand out performer, driven mainly by its affordability, Hydra Village rents have decreased by nearly 11 percent between January and September.

Office market

After holding steady for over a year, prime (Dh1,900 per sq m) and secondary (Dh1,100 per sq m) office rents in the city slipped by 5 percent and 8.3 percent respectively during Q3 of 2016. Receding demand and a growing amount of secondary space on the market has undermined rents. In fact, rates in some of Abu Dhabi’s prime office buildings have also buckled under the market’s weakness, with asking rents declining by up to 20 percent in some Grade A buildings.

Carnegy concluded, “Unfortunately, what we have seen in the Abu Dhabi office market is an offset as both supply increases and demand recedes. Real estate availability will need to fall into line with the market conditions set by the continued weakness of the global oil sector, and its effect on the local economy, before any stabilization can be established.”

Source: Trade Arabia