New supply to push down Abu Dhabi rents, prices

Average rents and sale prices in Abu Dhabi continued to decline in the second quarter from 'unsustainable highs' achieved three years ago, JLL said in its latest report. While rents for prime apartments in Abu Dhabi remained stable in the second quarter, rents for lower quality units declined up to 15% during the three month period.

Average rents for two bedroom apartments in Abu Dhabi have now fallen more than 40% since the market peak in 2008, the report noted. "Compared to alternative markets like Dubai, rents in Abu Dhabi are still relatively high, but large amounts of upper segment handovers will continue to push rents down across the capital throughout 2011 and into 2012," the report said.

Meanwhile, although average sales prices have declined by more than 45% from their peak, they have remained relatively stable since the fourth quarter of 2010. Still, even at these rates, transactions have been minimal, the report noted.

Handovers to increase significantly

The second quarter saw only 980 units being delivered in the capital, taking total current residential stock to around 189,800 units. However, handovers will increase significantly in the second half with up to 14,000 units scheduled for completion.

Apartments comprise around two thirds of the total upcoming residential units and the majority are located on Abu Dhabi Island, Reem Island and Al Raha Beach. The new supply is forecast to push down prices, but it could also have some positive impacts on the emirate's economy.

"The threat of increasing supply and liquidity constraints persist in Abu Dhabi's real estate market," said David Dudley, head of Abu Dhabi office, Jones Lang LaSalle Mena. "A number of residential, office, hotels and retail projects come online this year pushing rates down from unsustainable highs, but there are also positive economic ramifications. Reducing the cost of living and doing business in the capital improves the value proposition and attractiveness for residents and companies, thereby facilitating growth."

Lower rents in Abu Dhabi are also drawing commuters back from Dubai and lowering employment costs for companies, which will stimulate business growth and demand for both office and rental space, the report found.

A range of new government initiatives will also provide a boost to the emirate's property market. These include the three year residency visa for property owners; a new tenancy registration system; a new law limiting overcrowding in residential properties; and the government consolidating various major projects to reduce supply over-hang.

"We think demand can receive an additional boost from the various recently announced government initiatives, but the actual impact on growth will depend on the successful implementation of these measures," Dudley said.

The report also noted that the introduction of rent-to-own schemes may boost demand. This only currently available for one project, Sorouh's Sun Tower on Reem Island, but further developers are expected to follow suit in Q3.