Rents set to skyrocket as property shortage bites

The report notes that in Abu Dhabi, supply of property is scarce and demand is rising, with landlords presently sitting on gold with plenty of tenants and rents skyrocketing.

However, the residential housing stock is of a lower grade than in Dubai, because it is not based on a community master-plan like those pioneered by Emaar and Nakheel in Dubai. There is also no parking included and rents are presently at a 10-20 per cent discount compared with Dubai.

But Shuaa suggests that in terms of value-for-money the two emirates are priced more or less the same. This is set to change.

Abu Dhabi rising

Shuaa extrapolates the 25 per cent annual growth rate of rents in the UAE capital since 2004, combined with very limited new supply until 2010 and concludes that rents will continue to grow rapidly, and could well be higher than comparable rents in Dubai over the next three years.

Property values will naturally follow rents, and this market trend will only be reversed when new supply comes on stream to meet burgeoning demand. Until then it will be a question of squeezing more and more residents into the existing accommodation pool, and they will pay higher rents for the privilege.

It is the same story in the commercial property market. Shuaa reports that current office space is around 1.4 million square metres. Again the office stock is sub-standard and below the quality available in Dubai.

Office squeeze

But the existing commercial space is close to 100 per cent occupancy and rents have risen by 20 per cent in the past year. Here there is no hope for any relief this year but in 2009 and 2010 the release of new space will jump.

For those expecting rents to fall, this is wishful thinking says Shuaa: 'We expect most office supply to be pre-let well in advance of completion and do not at this stage envisage a price correction. On the contrary we expect prices to continue rising albeit at a lower price in 2009 than 2010.'

The message for anybody looking to establish a new business in the UAE capital is bleak: accommodation for staff and offices are very difficult indeed to find indeed. And because Abu Dhabi is so far behind neighbouring Dubai in its supply curve that situation is not likely to ease anytime soon.

In the meantime it is a golden age for Abu Dhabi landlords and the outlook for rents is clearly to the upside.

See also:
Mortgage market development to transform UAE realty prices
Abu Dhabi likely to follow Dubai on regulatory framework
Price spike sees land prices double