Abu Dhabi rents continue to slide, Dubai holds steady

The severity of the declines varied greatly depending on the location of the property in the emirate, according to Cluttons. At the high end of the market, primarily areas in northern Abu Dhabi, rental prices dropped 8% in the fourth quarter. But the lower sector of the market, in areas such as Mohammed Bin Zayed City, saw declines of up to 16% in the quarter.

Annual rents for one-bedroom apartments in bottom end of the market are currently around Dhs50,000, while those in the northern areas are around Dhs110,000.

Abu Dhabi faces supply increase

Cluttons predicts that rents in Abu Dhabi will to continue to fall as new projects open on Reem Island and the Corniche. Over 5,000 apartments are due to be handed over in the next six months. 'This additional supply will continue the shift from a landlord's market to a tenant favourable one, as people look to renew tenancy contracts or move better quality product,' Cluttons said.

At the same time, a delay in handover of units in Marina Square is hurting confidence in the capital's real estate sector, Cluttons noted. "The handover of hundreds of units in Marina Square is still awaited, with predictions that owners will not be able to gain access until Q2, 2011. These delays are hindering market confidence which waits in anticipation for the release of stock."

New research by property management company Asteco also found declines in Abu Dhabi rents, though less dramatic than the figures released by Cluttons. Overall, apartment rental rates in Abu Dhabi dropped 7% in Q4 compared with the previous quarter, with villa prices down 5%, Asteco said.

Asteco cited reduced company housing allowances and landlords being flexible with rates, along with price-driven demand, as key factors contributing to the decline.

Looking ahead to 2011, Elaine Jones, CEO, Asteco Property Management said, "Many new opportunities will arise in 2011. Buyers and tenants will have a wide range of choices shortly, as the long-awaited first phases at Reem Island come on to the market, together with new supply at Al Raha Beach. This will undoubtedly add further downward pressure on resale and rental rates throughout the capital moving forward."

Dubai rents holding steadier

By contrast, in nearby Dubai, the pace of decline appears to be slowing. Average rents for apartments in Dubai slipped 3.3%, and rents for villas fell 3.2% in Q4 compared with the previous quarter, Cluttons said.

Increased affordability and better quality listings have introduced market maturity into the emirate's real estate sector, and buyers now have the option to upgrade to a better quality unit in a more desirable location.

"As supply continues to increase, drops in values will be unavoidable," Cluttons said. "Accordingly we are going to see the 'flight to quality' in both the sales and rental markets as the more desirable locations become increasingly affordable."

However, lifestyle developments, such as Old Town, Dubai Marina, Palm Jumeirah, The Meadows and Greens, have proved resilient in both sales and leasing markets, the consultancy pointed out. "This has led to a two tiered market where stock characterised by inferior build quality, poor maintenance contracts and lack of views or amenities are proving hard to let," Cluttons said.