Oversupply is boon for renters in Abu Dhabi

Average residential rents in Abu Dhabi fell 18% in the first quarter year-on-year following the handover of a large volume of new stock, according to a new report by CBRE. "With a significant inflow of new properties occurring during a very short period, occupiers continue to enjoy a growing spectrum of choice across various locations and budgets," the report said.

The consultancy said rental fluctuations are often found to be even more acute for strata developments, with the presence of multiple landlords in the same building creating fierce competition. "Owners are also pushed to lease properties at lower rates in order to prevent the long void periods occurring, subsequently benefitting occupiers across the market," it added.

Jones Lang LaSalle also predicts further declines in rents in most locations across the emirate. It estimates up to 23,900 units are scheduled for completion in Abu Dhabi this year, but many of these projects are likely to be further delayed.

JLL also said the rent premium that Abu Dhabi had maintained over Dubai had decreased and will eventually reduce the number of commuters from Dubai.

Real estate consultancy Cluttons agrees that the drop in rents will prompt more people to move to the emirate from Dubai. "Back in 2009-2010, if you found a job in Abu Dhabi, realistically because of the high rental levels, you were going to live in Dubai in the Marina and drive down every day. So I think there is an opportunity for the new buildings in Abu Dhabi to lease up - it's just about being reasonable in the rental levels," said Steve Morgan, Head of Cluttons UAE.

Morgan said that although developers in Abu Dhabi face challenges, the residential market in the capital also has certain advantages over Dubai in the long term.

"The level of oversupply in Abu Dhabi isn't quite as severe as the level in Dubai, and the projects in Abu Dhabi are possibly more realistic in terms of location than some of the locations that you have in Dubai," he told AMEInfo.com. "So what you have in Dubai is certain markets coming back and other markets trailing behind, but I think generally the projects in Abu Dhabi are good quality and the numbers aren't as high as Dubai. So when the market does start to come back, it's more likely to be more sustainable across the various levels of the marketplace."

Morgan also believes that the completion of the proposed merger between Sorouh and Aldar would be another positive boost for the Abu Dhabi market. "Any move to reduce cost and try and get certain developments back online - which I think is ultimately behind the merger - is a sensible move. The world is a different place from what it was in the earlier 2000s when these quasi government developments were funded. So it's certainly a sensible move in the right direction," he said.

Gurjit Singh, COO of Sorouh, said the oversupply situation in Abu Dhabi is a typical characteristic of the supply cycle in any property development cycle. "At this point in time there are a lot of developments that are being completed and handed over to various types of owners. But the unique thing is that this time around a lot of the properties that are being completed are in investment zones and therefore there is a good cross-section of purchasers and developers are coming up with various types of structures and arrangements to lease these properties. And a lot of these new developments are offering good value for money," he said.