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Abu Dhabi property market showing “signs of fragmentation”

Average residential market rentals saw a marginal decline of nearly one per cent quarter on quarter

Abu Dhabi’s worsening economic health, stemming from cheap oil and the appreciation of the US dollar, is having adverse effects on the city’s real estate market, according to experts.

The local office market in the emirate has already started to feel the strain due to the slump in oil prices and is experiencing declining demand and rentals, remarks real estate consultancy CBRE in its Q3 2015 Abu Dhabi MarketView.

“With the oil and gas and public sectors serving as the primary office demand generator, demand for office space from both new occupiers and the expansion of existing end-users has started to slow. These conditions have also had a knock-on effect on other parts of the office sector, including some professional service companies, such as law firms, which rely heavily on work from the government and government-related institutions,” says Mat Green, Head of Research and Consultancy UAE, CBRE Middle East.

Meanwhile, average residential market rentals in the city saw a marginal decline of approximately one per cent quarter on quarter. They had maintained roughly two to three per cent of growth over the past quarters.

“The market is showing some signs of fragmentation, with older and poorer quality apartments – particularly those in secondary locations – experiencing rental declines. These declines have dragged down the performance of the wider market,” Green said.

The report forecasted that the emirate will see nearly 8,500 new housing units per annum over the next three years, in contrast to the 11,000 units which have been completed annually over the past five years.

While commenting on the outlook of the market, Green said the city’s real estate market will continue to witness a period of further deflation in the short term.

Last week, property brokerage firm JLL in its latest market review said Abu Dhabi’s real estate sector, while remaining relatively stable in the third quarter, is showing increased signs of caution with a slow-down in government domestic spending and a reduction in transaction volumes and investor sentiment.

The brokerage firm said it expects future residential rental demand in the capital city to be affected by the decline in oil prices, directly impacting the oil sector and indirectly affecting other sectors due to a reduction in government spending.

The UAE government has announced that, for the first time in 13 years, it plans to cut spending by 4.2 per cent this year.