News

Check out market updates

More residential units will vie for tenants in Abu Dhabi soon

Dubai: With many residential high-rises on Reem Island scheduled for completion this year, these could well provide the breathing space that Abu Dhabi’s perennially under-supplied property market requires… urgently. And the city’s residents can benefit from all that stock hitting the market, and in more ways than one.

Apart from the fact these apartments are of a uniformly superior quality, there’s the likelihood that many of them would enter the rental market at much lower rates than are available elsewhere in the city. If it does pan out as market observers project, this may well be the tipping point that Abu Dhabi’s residential market requires to bridge the gap with Dubai, where rentals are much lower.

Currently, rental differences between Dubai and Abu Dhabi are estimated at around 20 per cent in the case of apartments that have more or less the same description and in like-for-like locations. It exists even after Abu Dhabi’s residential market suffered rental declines of 16 to 30 per cent depending on the location during 2010.

The steep rental gap is the reason why the haemorrhaging of professionals working in Abu Dhabi but making their homes in Dubai continues, with Dubai Marina being a major beneficiary of this outflow. Another cluster that continues to thrive because of the same reasons is the Green Community.

“The opening of the new Shaikh Zayed Bridge has reduced commuting time to and from Dubai, which may prove a further temptation for workers to continue with their commute,” said a Cluttons report on the fourth-quarter 2010 trends in Abu Dhabi’s property market.

Abu Dhabi’s property market — as well as sectors such as retail, health care and education — cannot afford to keep losing these residents to its neighbour. More so, as there is a fresh spurt of recruitments being made by Abu Dhabi based companies in financial services, energy and other industries.

All the more reason why there’s a lot riding on the new apartments on Reem Island. If there are quite a few of them in the rental pool, that in itself could well make a difference to retaining the city’s resident base. The prospects, at this moment in time, from a resident’s perspective are good.

“As these developments will be the newest in the market, landlords will be keen to attract tenants, especially as the surrounding area is not yet developed with support facilities and amenities,” said Simon Gray, regional head at Chesterton International.

“I believe that as a general average, rentals will be 10 to 25 per cent lower than the average in the main island.”
That, to say the least, would be a substantial difference. As has been noticed at the Al Bandar cluster on Raha Beach,

But as to when the new hand-overs on Reem Island will take place remains in doubt, and not helping the cause of the market. According to a report by Cluttons, “The hand-over of hundreds of units in Marina Square (in Reem Island) is still awaited, with predictions that owners won’t be able to gain access until second-quarter 2011. These delays are hindering market confidence which waits in anticipation for the release of the stock.

“We expect a spell of increased activity in the spring of 2011, once these units become tangible assets.”

Investor-owners of these long-term leasehold properties need to get them registered with a special unit that has been set up at Abu Dhabi Municipality. But unlike Dubai’s Real Estate Regulatory Agency, the unit is not responsible for issuing bye-laws.

Beyond Reem Island, the Corniche and Airport Road will see projects getting completed, “with schemes such as Etihad Towers and Landmark Tower due to be released in the second quarter,” said the Cluttons report. “These two developments alone will bring over 1,200 residential apartments to the market.

There’s evidence that Abu Dhabi’s residents are adopting a wait-and-watch approach on the rental situation. The collective belief is that mid-year should provide them with some discernible trends on which they can take a decision.

“Whilst enquiry levels are high, tenants are showing a preference to negotiate an extension of their current lease to wait and see what opportunities the market will offer over the coming months,” said a new report issued by Asteco on the Abu Dhabi property market.
Suffice to say, transactional activity in Abu Dhabi’s property space is predominantly lease driven. The scarcity of investor interest continues to tell on values.

“Over the last three months, asking prices have dropped to as low as Dh950 per square foot in Marina Square, highlighting the existence of distressed sellers in the market who are unable to fund their final payments on handover,” said the Asteco report.

It is unlikely such sentiments are going to change soon.

Landlords woo people

Nothing like a soft market to get landlords to learn new tricks. Landlords owning commercial properties in Abu Dhabi are finding they have to come with something extra to get corporate tenants to sign up.

“In Abu Dhabi they have begun to be more flexible, especially those properties where they are pre-leasing,” said Charles Neil, CEO of Landmark Properties. “Developers are beginning to offer rent adjustments to secure tenancies in advance, i.e., when a company books space now at a fixed rate, come delivery of the project the fixed rate will be adjusted according to market conditions at the time.”

But unlike their counterparts in Dubai, Abu Dhabi’s developers still seem to chafe at giving away too much as incentives. “They still appear to be less inclined to offer incentives such as free fit-out periods or help with the moving costs,” said Neil.

“Though as competition for tenants increases over the year, this should begin to occur. As well as this, we have also seen in extreme cases landlords offering the first-year as a rent-free period with the second at a pre-agreed fixed rate.”

At some of the new office buildings, prospective tenants – depending on their stature – are also being tapped through offers of lease contracts of five years.

As in residential, prime new office stock will be available in Abu Dhabi this year through the likes of Sowwah Square, Etihad Towers and International Tower. On the existing Grade A office space, lease rates are around Dh2,500 per square metre.

Even then, “it is worth noting that Abu Dhabi rents are still comparatively robust when compared with Dubai,” said a Cluttons report. “One on-going problem is that many landlords are still quoting Grade A rents for secondary grade stock.

“Abu Dhabi office supply has been artificially constrained in previous years and so some landlords have been slow to adjust their expectations in line with current market conditions.”

Clearly some degree of catching up is there for what landlords should ideally expect and how they ought to go about it.

“At the moment, one would say Abu Dhabi is following Dubai’s patterns and reactions… [but] by some one to two years difference. Landlords have started understanding the market is changing and are offering some incentives to retain the tenants,” said Simon Gray of Chesterton International.

“As more supply comes into the market, unless the landlord ties the tenant to long lease contracts, chances the tenant would leave is probable as rents fall and newer, more attractive properties which falls within the price budget are available. “However, the one difference between the two cities is that a lot of expatriates in Abu Dhabi still have sizeable housing allowances as compared to Dubai, where housing allowances are being replaced now with a gross salary package.

“Hence, expats in Abu Dhabi in a way are sometimes not really bothered by falling rentals and choose to stay in the same place. Hence the market might be able to sustain falling rentals better than Dubai.
“However, in the long run, economic fundamentals will dictate – should an oversupply situation ever happen in Abu Dhabi, rents will fall.”

Gulf News

Discuss, analyse & share your views (kindly avoid sharing your email & contact number for your safety)