Abu Dhabi rents cool on supply

News of falling rents in Abu Dhabi does not sound implausible any more with a number of developments across the capital steadily coming online. Most recently, real estate consultancies revealed that rents in Abu Dhabi fell by 10 per cent in the second quarter, with Jones Lang LaSalle warning the trend will prevail for the rest of 2011. Indeed, an expected 14,000 residential units will be handed over before the year is out. \"Abu Dhabi\'s real estate market is entering a new phase,\" explained Craig Plumb, head of research at Jones Lang LaSalle Mena (Middle East and North Africa). Value proposition Article continues below \"It is one marked by enhanced supply quality and increasingly value-conscious demand, which will reward well-built and well maintained stock as rents continue to decline.\" It is good news for tenants, who finally have choice in a market that was for a long time famed for its take-it-or-leave-it attitude. Both residents and businesses in the capital can now afford to pick and choose — as well as paying less for more. \"It is a tenant favourable market,\" Plumb said, adding that it was not only new tenants that were due to boost leasing activity in the capital. Plenty of commercial operations were likely to take advantage of the supply glut to upgrade their existing facilities. He feels that it could even lead to a drop in those commuting from Dubai to Abu Dhabi, as it becomes affordable — not to mention convenient — to live and work in the capital. Marwan Shurrab, vice-president and chief trader at Gulf Mena Investments, said that the uptick in quality of new housing developments in Abu Dhabi could spell the end of some of the city\'s existing stock. He explained that while the luxury sector will not be affected by the overall drop in rents, mid-range apartments are likely to decrease significantly due to oversupply and only a slight increase in demand. \"The low-class apartments are quite old and most of them will be demolished by the municipality,\" Shurrab said. Some tenants might opt to upgrade their accommodation while others try to get around Abu Dhabi\'s biggest nightmare for residents — parking. \"The new apartments on Al Reem Island, for example, have generous parking lots compared to those towers on the Corniche. This will enhance the movement of tenants to Al Reem Island,\" Shurrab said. In the commercial sector, Shurrab said, the market is experiencing increasing saturation. \"This will enhance demand because tenants will be able to upgrade the quality or location of premises while managing costs. [There are] 2.3 million square metres of current office stock and 1.2 million square metres of upcoming supply in 2013.\" He added that while there is a lot of office space in Abu Dhabi, little of the current stock is what would be considered ‘Grade A\'. But while analysts say prices are falling, developers in the capital are upbeat. Masoud Al Awar, CEO at Tasweek, said positive growth was on the horizon. \"There will be a property sector recovery with healthy returns and sustainable demand. There is an improving level on the UAE\'s real estate sector starting in the first half of 2011, characterised by increasing investor appetite on high-quality assets as well as growing occupational activity as tenants take advantage of market opportunities,\" he told Gulf News. Al Awar said the real estate industry\'s recovery may take a few more years, given the immense size of the sector, based on a proper strategy that takes market trends into consideration. \"Although it can pick up if demand for properties increases against profitability, lower profit margins, lower returns, and lower finance. This will require the implementation of a proper strategy that takes prevailing market trends into careful thought and positions industry players for long-term growth as the global economy bounces back,\" he said. Investment potential Al Awar said the UAE has billions of dollars worth of projects on the boards, which is bound to attract investors both domestically and overseas. He expects Asian investors in particular to target the sector. \"The UAE still has over $45 billion [Dh165.26 billion] worth of projects in the pipeline, with developers looking to diversify their property development projects to cater to a rising demand from overseas clients who are showing strong interest to invest deeply across assorted property sectors,\" he said. This is especially likely given the fact that the recent political uncertainty in the region did not affect the UAE, reaffirming the country\'s status as a safe haven. \"In Abu Dhabi, all indicators point towards the maturity of the real estate sector in a positive way. This is subsequently shaping up fundamentals in terms of reasonable and justifiable pricing, facilities, amenities, project quality, infrastructure, mortgages, or real estate financing, availability of real data and location differentiation,\" Al Awar said. Abu Dhabi-based LLJ Property\'s head of investment sales, Andrew Covill, expects residents to move to new areas of the city, particularly to developments in Al Zeina and Al Bandar areas. \"Some of the waiting list will move to Al Zeina and the availability of units in the new development will also accelerate the migration of renters and owners from older buildings in the capital,\" Covill said. Paul Preston, CEO of Elysian Real Estate, agreed that the handing over of built projects will widen options available to Abu Dhabi renters, but he still felt that new projects would struggle in a market with so much stock due to come online. \"Al Zeina is entering a difficult sales market with the introduction of more than 14,000 additional units in Abu Dhabi by the end of 2011,\" he said. Jonty Summers, general manager of Bladonmore Middle East, added that the Al Zeina project was not the only big development due to be handed over by the developer this year. \"Aldar will also hand over 1,445 units by the end of 2011 of the Al Muneera project at Al Raha Beach.\"