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The areas that faced the biggest declines were the city centre and tourist club areas with rents falling by as much as 20%. The Khalidiyah and Corniche areas also suffered with prices decreasing between 10% and 15%.
According to Jesse Downs, director of research & advisory services with Landmark Advisory, these figures will continue to drop as more projects are delivered, and as more landlords are willing to negotiate rental terms, thereby increasing the bid-ask spread.
'Activity slowed down considerably in the commercial market during the last month as companies are now waiting for the handover of higher quality supply at more competitive lease rates. This trend is likely to continue as we enter the summer months which historically experiences low volumes,' said Andrea Menown, leasing manager, LLJ Property.
Residential rents have followed a similar, negative trajectory with average rents dropping 9% since March, following a 15% drop since the beginning of 2010. Downs noted these figures included the traditionally more resilient mid and high-end segments of the market, which had declined by up to 7% during the second quarter.
Dubai's market influence
Menown explained this can be ascribed to low-quality units that have already experienced a significant rent correction, whereas mid to high-end segments have until now remained relatively sheltered. 'Additionally, the mid and high-end segment has seen more competition from new, higher quality supply entering the market in 2010,' she said.
It is not just the new supply that has impacted on the market. Mark Kiszonak, vice president of local architect's firm, HKS, claims Dubai's influence on the market has played its part. 'The Abu Dhabi market took its early pricing scheme from Dubai, which back in pre-2008 was very much inflated. It was working 'successfully' in Dubai, so Abu Dhabi used the comparable market as a model. Add to this that supply was dreadfully tight and you have a rental market that enabled rates to soar. Now in Q3 2010, the market has adjusted. It is worth noting that rates are still fairly high when compared to other global cities, a sign that the inherent value remains.'
However, when it comes to developers dripping new stock into the market to prevent prices dropping too dramatically, Kiszonak is not convinced there is a straightforward solution, since so many parties have a part to play. 'Everyone wants to see Abu Dhabi unveil iconic projects yet nobody wants a substantial stumble in the real estate market due to oversupply.'
For the rental market, quality new stock is important but it is important the sector doesn't suffer. For the developer, it is pivotal to protect its investment - here Kiszonak agrees dripping may help - but not at the expense of the firm's reputation for delivering projects on time. While for the government, high visibility products will attract attention, a buzz and ensure investment and business comes to the capital. 'But the market needs to remain viable and news of slow-downs and market manipulation via dripping may hurt reputation,' he added. 'Each group has an interest in protecting the market. Again, there is no easy answer.'
In the long run, however, Kiszonak is confident in the enduring potential of the market, with the government investing significantly in its financial and social growth. 'Looking at what Abu Dhabi is planning considering the investments made on Saadyiat, Yas and the other islands to the north and the expected growth in the Capital District (toward Mafraq) I see continued activity in the capital. The government has committed to this growth as part of their 2030 initiative to attract tourism and business. It will continue, and as the global economy improves so will the activity in Abu Dhabi.'
Staff
