Abu Dhabi Real Estate Slowdown Expected, Rental Cap Could Be Reintroduced

Real estate agents are expecting a slowdown in the Abu Dhabi market due to the continued impact of low oil prices.

Matthew Green, director and head of research at CBRE Middle East, said he expected the market to be stable to negative this year, assuming Abu Dhabi’s forecast for three per cent economic growth.

“I think this year is going to be pretty stable, we may continue to see growth for the first part of the year, but looking forward if the economic situation isn’t improving we may start to see some negative growth there as well.”

He suggested an eventual decline of no more than five per cent could occur, although was unlikely in the short term.

“This economic uncertainty is not good for investors. Obviously there is a different structure and Abu Dhabi is more of an occupier market than an international investor market, but maybe we’ll see some negative growth before the end of the year.”

In its Q1 2015 Abu Dhabi MarketView report, CBRE said that Abu Dhabi’s office market had stagnated, with limited new demand emerging due to economic uncertainty regionally and globally.

The exception was the prime office market, where rents increased three per cent quarter on quarter and are expected to remain stable despite weak occupier demand.

In contrast, the secondary office market declined two per cent quarter on quarter, with the deflationary trend expected to continue.

Rental Cap Reintroduction?

Residential rents increased around two per cent in the quarter, marginally down from the three per cent seen in Q4 2014, according to CBRE.

This was consistent with growth seen over the last year, following a spike in the latter part of Q4 2013 when Abu Dhabi’s rental cap was removed.

The firm said it expected a new rental matrix to be reintroduced in the capital, with many residents concerned by the growing cost of living.

“What the government is concerned about is it frankly scares people away and doesn’t encourage people to relocate from Dubai if there is a price differential,” said Nicholas Maclean, MD of CBRE Middle East.

“We know it’s [the rental cap] being looked at carefully. They don’t want to stifle any future rental growth, and then therefore do away with the whole reason it was removed in the first place, but on the other hand they don’t want Abu Dhabi to be an unaffordable city.”

“So the government is contemplating both components, it’s calling for research from all sorts of people at the moment to help them make that decision.”

Abu Dhabi residential rents have increased by 12 per cent in the last year, according to CBRE, while utility rates are also on the rise.

Despite this, demand has remained strong during the quarter, the firm said, particularly for two bedroom units. These averaged a rent of Dhs141,000 per annum, rising to Dhs150,000 for prime developments.

Three bed units averaged Dhs168,500 per annum (up 10 per cent) rising to between Dhs240,000 and Dhs285,000 for prime units like those in St. Regis Residence.

Over the next four years CBRE said 35,000 new residential units would hit the market, with a clear focus on the emirate’s investment zone areas, specifically Reem Island.

Around 20 per cent of these units will also be completed on Abu Dhabi Island.