Abu Dhabi real estate demand to continue across all property sectors

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Between 2005 and 2008 Abu Dhabi's population grew by between 6% and 7% annually.

According to the government's estimates up to 2030, this should continue, averaging out at approximately 5.4% per annum.

Colliers International figures place current residential vacancy rates at an extremely low 1%. This has resulted in rental growth rates of up to 65% between the fourth quarter of 2007 and the same period in 2008.

Prices for 2008, however, have increased by an average of 89%, meaning that rental yields have fallen slightly as percentage returns on investments.

Top of regional price chart

In comparison with other cities in the GCC and wider region this places Abu Dhabi at the top end of the market when it comes to rental and purchase costs.

The average rental cost in US dollars per square metre in the UAE capital is $450. This tops equivalent charges in neighbouring Dubai where the average is $420. Doha, the next most expensive city, is $285, while prices in Cairo and Riyadh average out at $63 and $60 respectively, according to Colliers figures.

The average prices for sales also place Abu Dhabi at the top of the chart. Per square metre prices are estimated at $6,500, compared to $5,420 for Dubai, $4,670 for Doha, $1,006 for Cairo and $655 for Riyadh.

Conversely the rental yields for property in the city tend to be lower than all the other comparisons, save Cairo. Rental yields in Riyadh are the highest, averaging 9.2% - although the Saudi city also has the lowest occupancy at the top end of the market, at 92%. The price differentiation between rental prices and the cost of buying means that yields in Abu Dhabi stand at an average of 6.9%.

A report by Citigroup on the region's real estate markets predicts that demand will continue to exceed supply into 2013. Citing that demand is fundamental and excludes speculative investment and a current undersupply, according to Abu Dhabi Chamber of Commerce and Industry figures, of 50,000 units, the report predicts that even if household sizes remain constant - which appears unlikely given the demographics of immigrants to the city - existing demand will only be met by the fourth quarter of 2012.

If the population grows at the expected rate and household sizes decrease from five to an average of four persons per unit, Citi predicts a shortfall of approximately 84,000 units by the end of 2012.

Abu Dhabi commercial office trends

Currently Abu Dhabi has approximately 1.4m square metres of office space, although Jones Lang Lasalle estimates that only around half of this space is prime quality, putting the available space per capita in line with Singapore, Moscow and Seoul according to Citi.

Undersupply has meant that office rents increased by 40% between 2005 and 2006, and subsequently by 10% and 14% annually following the introduction of rent caps. This still places Abu Dhabi prices approximately 40% behind those in Singapore and Moscow.

Citi estimates that supply coming onto the market (385,000 square metres in 2009) will be quickly absorbed, and could even create additional demand as companies deterred from setting up in the UAE capital by high rents and lack of facilities may consider relocating.

For investors, rental yields for office units stand at an average of 8% to 9% annually, although this is expected to diminish with time as increases in capital prices will level out the balance.

See also:
Abu Dhabi 'able to finance' all current real estate projects
Abu Dhabi developers change focus to suit financial constraints
Will Abu Dhabi beat the global financial crisis?