Leading real estate consultancy Asteco has released its latest UAE Real Estate Report with an in-depth focus on Abu Dhabi, looking back at 2015 and providing a 2016 outlook, with continued low oil prices set to exert ongoing downward pressure on the market despite limited pipeline growth.
Following a slow but overall positive market performance in 2015, which saw apartment rental rates increase, on average, by 5%, with prime projects achieving up to 10% growth, and 3-4% growth for apartment sales prices, Asteco expects a noticeable slowdown in the next 12 months, compounded by a reduction in government spending and stagnant salary levels.
“Expatriates make up around 75% of the population in the capital and are a major demand driver for residential property. So unless there is a significant shift in labour requirements, we feel that the existing supply and demand dynamic will keep the market in equilibrium in the short to medium term. In addition, the new property law – No.3 of 2015 - should boost investor confidence with improved sector regulations across a number of key areas,” said Jerry Oates, General Manager, Asteco Abu Dhabi.
A total of 2,000 apartments and 100 villas were delivered last year including 850 units in phase one of Reem Island’s Hydra Avenue project, 160 units at Sea Side Tower, also on Reem Island, and 312 serviced apartments at Saraya’s Creek Tower on the Corniche.
“The temporary removal of the rent cap also helped increase rental rates for mid to low end units in line with market rate as these were previously underpriced. We are also, expecting a slight increase in rental rates for some popular projects, as well as some older buildings inside Abu Dhabi City that didn't increase their rates in 2015,” added Oates.
At the top end of the market, prime two-bed apartments on Abu Dhabi Island were renting at an average of AED 191,000 in 2015, up from AED 175,000 the previous year, while high-end two-beds in Central Abu Dhabi jumped from AED 145,000 to AED 150,000 and at Al Raha Beach from AED 155,000 to AED 161,000. At the mid and lower end, Reef Downtown increased from AED 100,000 to AED 104,000 and Corniche two-beds from AED 120,000 to AED 125,000.
Abu Dhabi will add 3,000 apartments and 850 villas to its residential supply this year, including Wave Tower with 229 units and Solaris Towers with 600 units on Reem Island, and phase one of Hidd Al Saadiyat (488 villas).
With 4% recorded growth in apartment sales prices, popular Raha Beach communities Al Bandar and Al Zeina moved upwards from AED 1,550 per square foot to AED 1,650 and AED 1,200 to AED 1300 respectively. For villas, 0% growth last year saw per square foot sales prices stuck at AED 1,020 for Golf Gardens, AED 650 for Hydra Village and AED 1,500 for the Saadiyat Beach (standard) Villas.
This year, Asteco is taking a cautious view of prospective market movement with the residential sales market not expected to see any major drop in prices for completed properties due to sustained demand by owner-occupiers and investors.
“Sales for new launches, which slowed down in 2015, are also expected to pick up once buildings come closer to handover, but we anticipate that this will more than likely be a 2017 scenario,” noted Oates.
In the commercial sector, the overall office rental market remained stable in 2015 despite low demand due to the decline in oil prices; however, several fitted offices in grade B buildings that had been leased out at lower than market rates increased by 5% to 7% during H2.
“The overall demand for office space in 2016 is expected to be restrained due to the continued decline in oil prices and government spending cuts, which are likely to affect jobs especially in the oil sector,” remarked Oates.