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Landmark Advisory, one of the leading real estate consultancy companies in the Middle East, today released its January Abu Dhabi Leasing Guide, compiled in collaboration with LLJ Property, a leading real estate agency in Abu Dhabi. The Leasing Guide is a reference tool for clients looking to rent property in the capital. Based on internal analysis, Landmark Advisory believes that Abu Dhabi rents are likely to keep falling in the first quarter of 2010, due to the downward pressure exerted by more supply and increasingly affordable Dubai rentals.
“There is a high degree of integration between the residential and commercial real estate markets of Abu Dhabi and Dubai,” explained Ms. Jesse Downs, Director of Research & Advisory Services, Landmark Advisory. “As rents are more attractive in Dubai, some residents of Abu Dhabi find it easy to accept the trade-off of living in Dubai and commute to work in Abu Dhabi. As a result, Abu Dhabi landlords have to compete with Dubai’s better value, and average rent levels will likely keep declining gradually to mitigate this ‘Dubai Effect.’”
Findings from October and November 2009 indicate that poor quality apartment units were the worst performing asset. In December, however, the rent declines also spread to more attractive, better quality apartments, though not to the same extent. In Q409, rents for lower quality units fell up to 20%, whereas higher quality apartments saw rents decline only 10%. LLJ Property’s Leasing Manager, Andrea Menown, explained that “one example is the average rent for a 2-bedroom apartment in Al Khalidiyah, which fell 11% from AED 225,000 to AED 200,000.”
“Q409 is unique, because rental rates are not just affected by supply. Landlords are growing more flexible in rent negotiations to attract tenants. Previously, rentals were virtually non- negotiable, but today we are in some cases seeing a margin of up to 10%, with the greatest margins achievable on high end properties “continued Menown.
During Q409, villa rent performance was a function of location. Rents for on-island villas fell as much as 20%, but mainland villa rents fell only 10%. “Rents are more stable on Abu Dhabi’s mainland, because they already fell so much in previous quarters. Therefore, Q409 was less severe than, for example, the 1st and 2nd quarters of 2009,” added Ms. Downs.
Landmark Advisory expects Abu Dhabi rents to keep falling through the first quarter of 2010, especially for larger units (3-5bedrooms), because smaller units remain in higher demand. Furthermore, rents in sectors that already fell significantly are now likely to see some relative stability.
Turning to the commercial sector, demand continues to focus on smaller spaces, echoing the demand pattern observed among residential tenants. Many companies are reluctant to commit to large office spaces, because they expect a combination of more rent competition and better alternatives as more commercial supply becomes available in 2010. “The volume of enquiries for commercial space in Abu Dhabi is increasing,” explains Andrea Menown, “we are primarily dealing with UAE companies looking to establish a second base in the Capital, as well as new business start ups looking for short term offices to establish a low risk foothold in the market.”
Ms Downs concluded that “while Dubai and Abu Dhabi remain on separate playing fields in terms of economic growth, the two emirates are intertwined with respect to their property markets. Abu Dhabi has to compete with the attractive deals now available in Dubai. The growing willingness of Abu Dhabi landlords to negotiate to ‘win’ tenants has contributed to this trend. Overall, while rents are still higher in Abu Dhabi, renters may find that rates are starting to become more competitive.”
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