Real Estate Market Analysis

01 Jun 12:44 AM

Sector : Real Estate Country : UAE

 By Julia Knibbs 

 

 

 

 

 

Residential Market

Over 36,000 residential units were delivered to the market from 2010 till 2012, leading rents to fall rapidly during the period. The following bar chart presents the cumulative new supply from 2010 till 2016, based on projects currently under construction and adding up to over 70,000 new residential units by 2016.

In 2013, Asteco forecast close to 16,000 residential units will be delivered (assuming no delays) with over a quarter targeting the Emirati population only in the form of Emirati housing. The remainder of the supply will be located throughout the city with an increasingly large proportion within investment areas that allow freehold (long leasehold) ownership to expatriates. New investment area developments due for handover in 2013 include over 5,800 units on Reem Island at Shams Abu Dhabi such as the Gate District, Sea View Tower, Mangrove Place, Al Wifaq Tower, Beach Towers, Oceanscape and Reem Diamond. Most of the new supply will be handed over from the second quarter (Q2) onwards with limited additions during the first quarter of 2013.

With these amounts of supply entering the market, rental rates have been falling by around 12 percent to 17 percent annually since 2009, with a 12 percent average drop recorded during 2012. This has resulted in the rental gap between Abu Dhabi and Dubai finally reversing. Abu Dhabi now has a much more competitive offering, leading to the number of commuters declining and especially newcomers to the Emirate choosing to live in Abu Dhabi. This is further accentuated by the 2012 government announcement requiring government employees to reside in Abu Dhabi to qualify for housing allowances, driving demand for the higher end segments of the market.

In addition, the Tawtheeq lease registration system that precludes illegal sharing of accommodation is being more systematically enforced, leading to increased demand for legal affordable accommodation options in off-island areas such as Mohamed Bin Zayed City and Khalifa City, which had traditionally been occupied by the lower income segments of the population.

As a result of this increased demand both at the low and high end of the market, together with limited supply entering the market during Q1 of 2013, the leasing market remained strong with rents dropping only by 2 percent overall and some areas such as Al Raha Beach at the high end and Mohamed Bin Zayed City at the affordable end, even experiencing some growth.

We have also witnessed an improvement in the sales market within certain established projects such as Marina Square, Sun & Sky Towers and particularly al Bandar at Al Raha Beach. The latter saw sales values increase by over 13 percent since the beginning of the year, reaching $340 per square foot on average and up to $381 per square foot for prime units.

Whilst sales prices at Sun & Sky Towers increased to $340 per square foot on average during the first quarter of 2013, we expect that with the delivery of over 5,800 units new developments at Shams Abu Dhabi this year, the increased competition is likely to lead to declines in the short to medium term as the new supply is being absorbed.

Overall, 2013 is the first year where residents, both buyers and tenants, have good levels of options in the market at reasonable prices, implying that Abu Dhabi has finally become a more competitive residential destination compared to previous years where the market offering tended to be perceived as lowvalue- for-money. With the supply still due to enter the market this year, rental growth is however forecast to be marginal and restricted to few developments only.

Commercial Space Lacks Competitiveness

Compared to the residential market, the office sector in Abu Dhabi still lacks in terms of competitiveness compared to neighboring Dubai with most international companies seeking to establish a presence in the UAE comparing the offering between both cities and in many instances opting for Dubai.

Indeed, most office developments in Abu Dhabi consist of standalone towers, with limited supporting facilities and parking at relatively high prices compared to Dubai, making the city less attractive to new occupiers.

Only prime, mixed-use developments have been able to achieve strong levels of demand such as Nation Towers on the Corniche, reaching close to full occupancy within a year. Most landlords however still have unreasonable price expectations and hence are not able to achieve similar take up rates.

In terms of new projects entering the market, Al Bustan Complex on Airport road with 22,120 sqm of office NLA is expect to be a popular development as it includes high quality fitted space, with five levels of basement parking together with a four star Novotel hotel, residential and serviced apartments.

 
 
Julia Knibbs
Senior Analyst at Asteco, Abu Dhabi 
 
 
Julia Knibbs is permanently based in Abu Dhabi where she is responsible for all real estate related research and analysis as well as market and financial feasibility. Knibbs holds a Master’s degree in Real Estate Management & Development from Heriot-Watt University in Edinburgh.

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