Average apartment and villa rents in Abu Dhabi are expected to weaken further this year after declining in 2016 due to new supply and uncertainty related to state mergers, according to real estate consultancy Asteco.
In its Q4 2106 report, the firm said apartments and villa rents in the UAE capital were down 7 per cent and 5 per cent respectively year-on-year and further decreases were expected.
This was primarily due to new supply entering the market, with approximately 2,700 apartments and 1,360 villas scheduled for handover this year, compared to 1,400 units last year.
“Although delays cannot be ruled out, this will definitely put pressure on rental rates for existing stock,” said John Stevens, managing director of Asteco.
The company said tenants are also expected to increasingly seek cheaper rents leading to pressure on units able to maintain rental levels, while mergers of government investment units IPIC and Mubadala and National Bank of Abu Dhabi and First Gulf bank could impact demand.
“High profile corporate mergers in the pipeline are expected to lead to increased job uncertainty and could affect employee benefit packages, including housing allowances over the next few years, raising the potential for softening demand and therefore declines in market rates,” Stevens said.
Prime and high-end apartment rents in the emirate fell 6 per cent and 9 per cent respectively year-on-year.
Large decreases were seen on Abu Dhabi island, where the average rent of a high-end two-bedroom unit fell 10 per cent to Dhs141,000, and in Khalidya/Bateen where the two-bed rental price was down 13 per cent to Dhs146,000.
Mid and lower level apartment were down an average of 5 per cent, with drops mostly seen in the second half of 2016, according to Asteco.
In the villa sector the greatest declines were seen in the Al Raha Beach area, down 10 per cent, but Saadiyat Island remained relatively stable due to a high percentage of owner-occupiers.
Apartment sales prices in the emirate were down 4 per cent on average and villa sales prices were also down 4 per cent.
“The anticipated delivery of new residential projects is expected to increase investment opportunities, which in turn will have a positive effect on transaction volumes. Off-plan projects offering attractive sales rates and payment plans will continue to achieve good demand levels,” said Stevens.
The decreases recorded by Asteco differ to those reported by Chestertons MENA, which said average residential rents were down 7 per cent for apartments and 10 per cent for villas last year.