Abu Dhabi property market likely to stabilise in 2010

KUALA LUMPUR: The Abu Dhabi property market is expected to maintain a relatively strong position, fuelled by the existing meagre supply across all assets classes, compared with the other Emirates, according to CB Richard Ellis Europe, the Middle East and Africa.

In its research note on the region, the global leading commercial real estate adviser said rents in Abu Dhabi are generally expected to remain weak for the remainder of 2009 but will likely stabilise in 2010.

“As significant new supply of residential units and office space under development becomes available, we foresee that landlords will increasingly need to adopt a more flexible approach to lease negotiations,” it noted.

Current market conditions have forced landlords to relax the usual payment terms. Previously, tenants paid one or two cheques to cover their rents but this has now changed, with the number of cheques issued being the result of individual negotiations.

Sale and lease rate adjustments will likely continue for the rest of 2009, although financial institutions are slowly making their credit facilities more available, which should provide some support to the market when allied to improved appetites from investors and developers.

Aside from the current pressing financial climate, the traditional summer dip added further to a somewhat inactive Abu Dhabi real estate market in 3Q.

However, both prices and rental levels have shown strong resilience amidst low confidence and investment appetite. Property decisions remain largely on hold with minimal activity expected during the final quarter.

Both commercial sales and leasing transactions for the office sector remained restricted during 3Q2009.

Asking prices for prime properties typically ranged from AED19,500 (RM17,954) – 26,000 per sq m although relatively few sales transactions were registered.

“Low levels of investment reflected the unmatched expectations of both existing investors and potential buyers with owners of properties reluctant to succumb to lower values in anticipation of a positive cyclical spin, while buyers are wary of a continued downturn in asset values,” it said.

On the leasing front, office rents continued to tumble. Despite healthy market fundamentals, unfavourable impacts of the crisis are now more noticeable.

Demand dropped sharply with agents finding it increasingly difficult to lease new commercial space. As a result, prime rental rates have plunged from the highest recorded rate of AED5,000 per sq/pa to AED2,900 per sq m/pa or circa 40% year-on year reduction.

Residential rental rates fell significantly during 1H2009. However, in 3Q there was a more modest decline, particularly for housing units situated within the Central Business District.

Residential units situated off island continue to experience a higher reduction in rents, about 8 % to 15% lower than in 2Q2009.

“Our research has identified a downward movement in sale prices during 3Q, with sales transaction activity at extremely low levels,” it said.

During 3Q, average sale prices for high-end apartments and villas started from AED11,300 per sq m and AED8,600 per sq m respectively.

Nearly completed projects in developments such as Marina Square on Reem Island and Al Raha Beach, received a higher level of attention with upcoming completion dates signalling reduced risk levels for investors compared with competing off-plan products.