‘Affordable homes’ most popular among Abu Dhabi investors

increase in available office space

ABU DHABI 7 August 2017:  The capital’s residents are becoming increasingly cautious gravitating towards affordable housing options, according to the latest Abu Dhabi MarketView by global real estate consultancy firm CBRE.

As of Q2 2017, average rentals declined by nearly 11 per cent year-on-year and 3 per cent quarter-on-quarter.

However, analysis reflects a high degree of fragmentation, with upscale properties experiencing larger drops of around 12 per cent, against more affordable properties which have declined between 6-10 per cent during the same period.

Matt Green

Mat Green

“As vacancy rates increase, rental declines are also increasing, driven by the addition of new units in locations such as Reem Island, as well as various stand-alone properties across the capital. As residents become more prudent in their spending, smaller units in cheaper suburban locations are finding more favour,” said Mat Green, Head of Research and Consulting, CBRE Middle East.

The residential sales market continues to see declining values and low transaction volumes, with prices falling 4% during Q2 2017. Al Raha Beach and Reem Island remain as popular investment locations, with typical sales rates ranging from Dh14,000–17,200/sqm.

More affordable investment locations, such as Al Reef and Hydra Village, have prices ranging between Dh8,400 12,175/sqm, and remain in high demand due to their lower price point and community environment.

Supply Increase

However, the delivery of new residential units over the next 12 months is likely to further dampen the market, with investors on hold with their buying decisions in anticipation of further dips in prices.

According to the report, the emirate recorded 1.12 million hotel visitors during Q2 2017, roughly 10% higher than Q2 2016. However, despite the rising guest numbers, Abu Dhabi’s hospitality market continues to face mounting challenges, amidst rising new supply, and a prevailing weak corporate market, which combined have resulted in a notable drop in revenue performance.

“With soft conditions across the traditional tourism segments, the Tourism and Culture Authority has set sights on developing the cruise industry. The Emirate is hoping to welcome close to 250,000 passengers during the main cruise season, which runs from October to June,” said Green.

Total cruise passengers are forecast to grow by a Compound Annual Growth Rate (CAGR) of 22%, reaching 450,000 passengers by 2020.

Hotel Occupancy Data

According to data from STR Global, Abu Dhabi’s year-to-date occupancy rate to June 2017 reached 70%, down from 72% in 2016. During the same period, the average ADR dropped from Dh468/room/night in 2016 to reach Dh435/room/night in 2017, equating to a 7% annual decline.

Following the occurrence of declines in occupancy and ADRs, average RevPAR also fell by around 10% to Dh309/room/night in comparison to the Dh339/room/night achieved in the year-to-date to June 2016.

Cost saving strategies across both public and private agencies, coupled with increasing supply, have resulted in rental declines. Prime office rentals in Abu Dhabi have dropped by around 5% from Dh1,850/sqm/annum in Q2 2016 to Dh1,750/sqm/annum in Q2 2017.

“In contrast, the secondary office market has experienced more rental deflation, as well as rising vacancy rates. As a result, rental rates for secondary offices are now averaging Dh900/sqm/annum, down 11% from the same period last year.

On top of lower average rentals, occupiers are now also benefitting from greater landlord flexibility, with a wider array of incentives available to them, including more flexible leasing terms and rent-free periods,” concluded Green.

By Angel Chan