Landmark Advisory releases Q409 UAE Real Estate Report: new activity, new trends, new questions

According to the latest report by market leader Landmark Advisory, residential prices in the UAE were more unpredictable than in previous quarters. "Our outlook remains tenuous, but the recent burst of activity raises exciting new questions about where these markets are headed," said Jesse Downs, Director of Research & Advisory Services at Landmark Advisory.

In Dubai, villas accounted for 60% of Q309 residential sales, with prices increasing 8%. The report identifies that projected villa supply and current sales inventories are currently relatively stable leading Landmark Advisory to predict that villa prices are likely to remain stable in the short term; "If investor confidence and inventories are stabilizing, then we may have possibly reached a price floor for villas," commented Ms. Downs.

The latest report found that apartment prices fell only 3% in Q309, in comparison to falling 17% during Q2. Explaining the reasons behind this, Ms. Down's, said:

"Apartment inventories remain stable, with the majority of sellers holding prices, and because many distressed sales that were available over the past 3-6 months are no longer available."

The report also found that despite regaining some stability, overall supply dynamics do not support a general, short-term price recovery for Dubai apartments.

"In Dubai, apartment demand gravitates toward more affordable units, but financing appears to be an issue, with financed apartment sales declining to 14% in Q309," continued Ms. Downs.

Leasing rates for villas in Dubai have increased 6%, in line with sales trends. "This is due to considerable demand during the summer months, primarily from relocation within the UAE, but also from a limited amount of new demand from expatriates moving from abroad," said Ms. Downs.

The Landmark Advisory report cautions that these trends reflect market averages; while rents went up in the majority of developments, they remained stagnant in a few villa communities. Unlike the villa segment, Dubai apartment rents dropped 17%, during Q309.

Dubai's office market continues to suffer from weak demand, which brought office prices down another 10% in Q309. Office rents, however, declined only 4% over the last quarter. Ms. Downs explained that, "Office rents changed relatively homogenously across all areas."

Turning to Abu Dhabi's residential market, average listed sale prices increased, but most real transactional prices did not. Bid-ask spreads reached 15%-20% in Q309, representing a sharp increase over last quarter, when Abu Dhabi spreads were only 5%-10%.

According to Ms. Downs, "This means that listings in Abu Dhabi are increasingly inconsistent with real market values."

The report also shows that market-wide average listed prices for apartments and villas increased 8% and 10%, respectively, but "Transaction patterns show that only a tiny minority of sales reflect this improvement," said Ms. Downs.

Abu Dhabi's leasing market showed a similar trend, with asked rents appearing to stabilize, while agreed rents kept falling.

"Landlords are gradually adapting to Abu Dhabi's shifting rental market. For example, landlords actually used to prefer high vacancy rates over low rents, but are now increasingly willing to negotiate discounts and multi-cheque agreements with prospective tenants," explained Ms. Downs.

Despite the apparent current stability of asked rents, supply flows are likely to increase downward pressure, especially for lower quality and larger apartments. Landmark Advisory predict that off-island villa rents are likely to suffer the biggest declines.

The office market in Abu Dhabi remained paralyzed in Q309, despite a relatively small 3% decline in listed sale prices. In the short-term, average office prices are likely to fall further, as most freehold office supply is too far from completion to attract buyers. Rents fell between 5%-15% on Abu Dhabi Island, but off-island rents fell 20% in Q309.

Commenting on this, Ms. Downs said, "Unlike the sales market, a lot of non-freehold leasable supply will be delivered in the next year, which will continue to push down office rents. In addition to this, falling demand, caused by delayed or cancelled office expansions will also negatively affect Abu Dhabi office rents."