Dubai: Abu Dhabi may have removed the 5 per cent rental cap, but the substantial new residential supply — 40,000 units forecast for the next three years — could ensure that rent spirals do not go out of hand.
“The high volume of expected new supply may at least help to curb some of these inflationary pressures… although this is likely to be location specific and dependent on the local market fundamental,” stated a new report issued by the realty firm, CBRE, on Abu Dhabi’s realty trends during the fourth quarter of 2013.
Reem Island will absorb the bulk of the new handovers, with CBRE estimating this to be around 45 per cent of the total. (Abu Dhabi removed the rent cap in November last year.)
Already, some of the impact from the roll-back of the rent cap is being felt, with residential lease terms up by 9 per cent during the fourth quarter alone. For the full year, rents gained an average of 16 per cent. The sharpest gains were for one-bedroom units, by 11 per cent, during the final three months of 2013.
“Despite Abu Dhabi’s impressive return to growth, the market remains polarised in its performance, with significant variation found between the emirate’s key residential locations and by the age of the specific property,” the report stated. “With a large portion of the capital’s housing stock now quite dated in appearance, there has been widespread tenant migration towards new developments upon completion, which in turn has resulted in sustained rental deflation for many older units.”
In the near term, what could become more pronounced is the rental divide between ‘on-island’ and ‘off-island’ locations. During the fourth quarter, apartments at off-island neighbourhoods were leasing 44 per cent lower, CBRE reports. “The average annual rental for a two-bedroom apartment unit off-island is now Dh66,500 [per] annum… This compares with Dh115,000 on-island,” the report stated.
Apart from the substantial new stock that is already in the pipeline, brand new stock is also on the anvil.
According to Robin Teh, country manager at Chesterton UAE, “the area close to the Dubai border, and by extension in proximity to the many developments associated with Expo 2020, should see a lot of development activity from the Abu Dhabi side. Aldar Properties has, I believe, some extensive land bank there and that should be top of any planned agenda.”
The CBRE report also sounds upbeat on the possibility of new projects.
“We can expect an increase in the level of residential investment, particularly within established masterplan locations. This in turn may lead to an increase in the number of new construction starts as we move through 2014, after what has been a relatively quiet period for the new development launches,” it stated.
Abu Dhabi’s office rentals remain flat
* Average prime rentals for Grade A commercial office space were stable at Dh1,850 a square metre, according to CBRE. Variations were dependent on the quality of the individual tenant, lease structure and incentive packages.
* Secondary office rental rates were also relatively unchanged at Dh1,200 a square metre. “Further rental deflation is expected over the next year as new good quality developments are completed, and as the current flight to quality continues,” according to the report.