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Residential Rents Continue To Rise As Office Market Remains Flat |
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Average residential rents continued to increase during Q4 2014, but at a slower pace than at the start of the year with average market rents increased by around 3% quarter-on-quarter, and roughly 17% from the same period last year, according to the Q4 2104 Abu Dhabi MarketView by global real estate consultancy firm CBRE. Mat Green, Head of Research & Consultancy UAE, CBRE Middle East, said, “The delivery of new supply in recent months has increased competition for tenancies, resulting in a more cautious approach by some landlords who have become more realistic with their rental requests.” “As the cost of living has risen over the past 12 months, there has been a more noticeable increase in demand for low to middle income units and also for non-prime areas of the capital. This in turn has driven rental growth in more affordable locations as a flight to quality continues.” According to the CBRE report, the quarter also witnessed an increase in interest from end-users looking to purchase their own homes, driven by imminent lease expirations or planned relocations due to the rising rental costs. Residential properties situated on the outskirts of the city have continued to gain popularity, principally due to affordability reasons. With sustained rental growth in central city locations, housing units situated in areas such as Khalifa City A & B, Mohammed bin Zayed City and Mussafah have become viable alternatives for price-conscious residents. The growing number of new schools, healthcare facilities and community retail centres is also helping to attract more family residents into the suburbs, stated the CBRE report. “Prime master planned developments such as Al Raha Beach, Reem Island and Saadiyat remain the hot options for residents looking for quality housing units. A 2-bedroom unit in the St. Regis currently has rentals ranging from AED150,000 – 210,000/year whilst similar units in Al Raha Beach have rents starting from AED140,000/year,” commented Green. According to the report, the villa market continues to display more stable signs with limited available lease options and strong tenant loyalty resulting in limited volatility. During the quarter, annual rents for a typical four bedroom villa on Abu Dhabi Island started from AED190,000/unit/annum, with rates going as high as AED350,000/unit/annum for luxury villa units in prime locations. Similar residential types in off-island locations are currently being rented between AED140,000-AED180,000/unit/annum. “Despite rising housing stock, the Abu Dhabi residential market continues to outperform most other property assets. In total, around 35,000 new residential units are expected to be completed over the next three years with a large portion being from within master-planned communities. Additionally widespread relocations are expected as residents look to move away from inferior properties,” further stated Green. The Abu Dhabi’s office market, according to the CBRE report, remained largely stable during the quarter with minimal movement in either supply or demand levels recorded. No major new office supply was completed during the final quarter, leaving stock unchanged at around 3.66 million m2, providing a further cushion for maintaining steady rents and vacancy rates. Prime office rental values remained fixed at around AED1,850/m2/year, reflecting a 3.0% change from the same period during 2013. Average office rents also remained flat at AED1,150/m2/year. Commenting on the performance of office sector in the last quarter of the year, Green said, “Public expenditure remains the key driver for Abu Dhabi’s office demand, with new requirement from government agencies and other related private companies. This could be further buoyed in the short term by the increase in budget allocation for 2015, particularly with the high allocation towards social infrastructure spending.” “However, amidst the current slump in oil prices, another major occupier group, the Oil and Gas sector, could be set for a period of decline. Given the current environment it is likely many existing new office requirements could be placed on hold, with a possibility of some occupational downsizing should the current pricing trend be maintained for a sustained period of time.” According to the report, despite the challenging global environment, the local economy will be cushioned somewhat by the rise in public spending through infrastructure development, improvements in social services and other public facilities which will continue to fuel economic activities and property demand in the short term. However, the UAE does not operate in a vacuum and it must be assumed that there will be some negative impact felt as a result of the on-going situation in Europe and with other economic partners such as China. “For now, we expect the recovery in residential rental rates to continue, albeit at a slower pace than during the first half of 2014. For office rents, it is likely that rates for prime properties will remain steady, with limited new supply and a slow period for new demand,” concluded Mat Green.
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