ABU DHABI 18 April 2018: Both residential and commercial rentals in Abu Dhabi are expected to follow downward trajectories as in the previous year, said CBRE at the start of Cityscape Abu Dhabi.
It said new supply will place further pressures on rentals and occupancy rates.
Residential Highlights
Abu Dhabi’s residential market continues to experience deflationary pressures driven by weak demand fundamentals and the cautionary approach of many occupiers, due to the uncertain employment environment.
During Q1 2018, average residential sale prices declined by around 1% and by 5% from the same period in 2017, as secondary market transactions in particular suffered from suppressed investor sentiment.
In the leasing market, average residential rentals also continued to fall. However, positively the rate of decline is now lower than has been evident for much of the last three years. On a comparative year-on-year basis, rentals in the capital have dropped by around 10%, but the quarterly change was around 1.6%.
Despite the general downward trend in average rental rates, the Emirate’s housing performance has remained somewhat mixed, depicted by a range of declines between 1-5% during the year period.
Despite the more challenging economic environment, Abu Dhabi’s residential sector continued to witness an active off-plan sales market, led by a series of launches from the local developer Aldar. In 2017, Aldar is estimated to have launched close to 1,900 homes, of which 83% of the units were sold by the end of the year.
Mayan, the luxury golf facing development of Aldar on Yas Island is under-stood to have been more than 80% sold. With a significant number of units purchased by UAE institutional investors.
Strong sales were also evident in the positive sales achieved by The Bridges on Reem Island and Waters Edge and West Yas developments on Yas Island.
By end 2020, the level of new supply in Abu Dhabi looks to be consistent, averaging just over 8,250 units per annum, and totaling roughly 25,000 units.
A report from the Statistics Centre Abu Dhabi (SCAD) has indicated a 7% annual increase in the volume of foreign direct investment in Abu Dhabi during 2017. Sales of properties accounted for roughly 28%, and were the highest contributory segment to the total FDI. Construction and building activities also grew by around 14% during same period.
Office Rentals – Highlights
Abu Dhabi’s commercial office market remains in a contraction phase, with take-up levels suppressed by the lack of leasing activity from the Public Sector and Oil and Gas occupiers, which form the backbone of demand in the Emirate.
Average prime office rentals now measure around Dh1,615/psm/annum, having declined 8% from Dh1,750/psm/annum for the same period in 2017. The outlook for offices remains somewhat bleak, with further downside to rentals and occupancy expected during 2018.
Secondary office rentals now average Dh800/psm/annum, roughly 15% lower than the achieved rentals during the first quarter of 2017.
It is now a heavily tenant led market, with occupiers benefiting from a wide ar-ray of options, with landlords willing to offer much more flexibility in their leasing terms to secure tenancies and reduce the risk of long term vacancy rates.
As the market has softened, the pace of construction has slowed, with delays in building completion and actual handover of properties aiding the situation, offsetting the negative impacts of weaker demand and avoiding further aggravation of rental levels.
Future supply levels have also declined, with limited new office projects being launched over the past five years, reflects the market’s challenges. In total cir-ca 0.5 million m² of new office space could enter the Abu Dhabi office market during 2018 – 2020, assuming minimal delays.
Retail Rentals – Highlights
Just like other asset types, the retail sector is feeling the pinch of weaker demand levels as consumers have become more prudent with their spending (both from rising cost of living and impacts of VAT).
Despite the overall weaker market sentiment, major malls continue to enjoy comparatively strong occupancy and rental levels.
During the quarter, prime rents for typical line shops (mall-based) ranged be-tween Dh2,500 – 3,200/m2/annum whilst similar units within off-island locations had rents between Dh2,000 – 3,200/m2/annum.
Although, rental ranges remain wide, average rentals decline by around 8% year-on-year, with more severe declines for secondary and tertiary locations.
With retail inventory levels expanding, mall operators are now becoming more open to negotiating with tenants and have become more generous with incentives and contract terms.
Analysis of the on-going development pipeline indicates that circa 0.29 million sqm of new retail GLA is expected to be handed over in the Abu Dhabi market during 2018 – 2020. Over the next three years, total retail development is ex-pected to reach close to 1.9 million square metre GLA. This will reflect roughly 18% of the existing organized retail stock.
Hospitality Sector
However, the hospitality sector is likely to see an improving outlook, as guest nights and occupancies continue to rise, said CBRE.
Average room rates and overall revenues are expected to face further downside risk. As competition tightens, further drops in average rooms rates are to be expected as hotels target domestic tourists with attractive promotions and dis-count packages, it added
Hospitality Highlights
During 2017, Abu Dhabi welcomed around 4.9 million visitors, reflecting over 10% growth over 2016 figures. This number is expected to expand at an even faster pace during 2018, with the Abu Dhabi’s Department of Culture and Tourism (DCT) forecasting annual visitor numbers of over 5.5 million.
The opening of The Louvre Abu Dhabi, along with the other leisure attractions on Yas Island, has helped to expand the Emirate’s tourism offerings to both domestic and foreign visitors.
The total number of hotel guests for the month of February reached around 358,400, which translated into a 16% annual increase from last year’s 308,000 hotel guests.
The average hotel occupancy in Abu Dhabi reached 81% in February, rough-ly 3% higher from same period in 2017.
Despite the increase in guests and occupancy rates, RevPAR’s fell by close to 21%, reaching to Dh286/room February 2018, driven by a 23% decline in ADR’s, which dropped to AED354/room/night, as compared to circa Dh460/room/night in February 2017.
Rising hotel inventory levels and stiff competition amongst hotel properties continues to weaken the overall revenue performance.
Assuming minimal levels of delay, the total room inventory in Abu Dhabi is es-timated to reach circa 37,000 keys by the end of 2020