ABU DHABI: Shifting market

Abu Dhabi's real estate sector is moving away from a situation of limited supply and high rental prices to one of improving quality and lower costs, which over time could tempt some commuters living in Dubai toward the capital.

In the past, a perennial shortage of housing stock saw tenants across the emirate spend substantial amounts on rent. This trend, however, is now changing. According to Asteco, a property management company, an estimated 4500 new apartments are now ready for tenants. An additional 8000 units are due for completion by the end of 2010.

"Changing market dynamics will continue to put downward pressure on rents, particularly older stock, which should be interpreted as a healthy move," Elaine Jones, the CEO of Asteco, said.

Figures for the second quarter of 2010 support the argument that things are improving for tenants. Villa and apartment rents dropped on average between 7% and 15% for mid-range properties, according to a recent report by Asteco.

This pattern of falling prices is set to continue throughout 2010 as more supply reaches the market.

Landmark Advisory, a real estate consultancy company, also believes that rents will continue to cool as more residential and commercial projects are handed over.

"While asking prices for rents are not likely to decrease significantly in the coming months, we expect agreed rents to decline further as more landlords will be increasingly willing to negotiate, thus increasing the bid-ask spread, especially in the commercial market," said Jesse Downs, the director of research and advisory services at Landmark Advisory.

Location, of course, will be a key issue when it comes to negotiating new rental prices. The City Centre and Tourist Club areas in the capital witnessed the biggest declines, with rents falling up to 20% since March 2010, according to Landmark Advisory. Other places witnessing significant rent reductions were Khalidiyah and the Corniche, where prices decreased by 10ᆣ% in the same time period.

While such declines are unlikely to result in wholesale changes in the real estate market, they do illustrate that life is getting a little easier for tenants.

Still, even with the market looking increasingly attractive, real estate agencies are not inundated with would-be clients just yet. "Activity slowed down considerably in the commercial market during the last month as companies are now waiting for the handover of higher quality supply at more competitive lease rates. This trend is likely to continue [in] the summer months, which historically experience low volumes," Andrea Menown, the leasing manager at LLJ Property, a real estate agency, said.

In terms of this higher-end supply, most of it will be concentrated on Reem Island and Al Raha Beach. Most mid-end stock being delivered will be located on Abu Dhabi's main island.

For people currently living in Dubai and commuting to jobs in Abu Dhabi, these new developments could prompt some to consider returning to the capital. Following the onset of the property slump in Dubai, many people living in Abu Dhabi decided to relocate there because of the lower rents.

With many residents locked into rental contracts for the near term, the potential uptick in returnees to the capital is likely to play out over an extended period. "So far the majority [of enquiries] are from existing tenants relocating within the city," said Paul Maisfield, the general manager of Asteco's Abu Dhabi office.

"We have not witnessed significant numbers of commuters looking to move back to Abu Dhabi, but with more quality supply to come within the next six months on Al Raha Beach and Reem Island, that could well change, subject to education, health and lifestyle infrastructure also being available," he added.

Another important aspect in attracting people to Abu Dhabi is, of course, the economic outlook. Naturally, a growing economy that creates an increasing number of jobs and investment opportunities would be a boon to the real estate market.

On this front, Abu Dhabi looks to be in a strong position. Over the coming years, the emirate's ambitious development strategy is expected to stimulate business creation and growth, which in turn will boost demand for both office and residential property.

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