Residential and commercial rents in Abu Dhabi are expected to drop further as homes and offices are built four years after the credit crisis roiled the United Arab Emirates’ real estate market, according to CBRE Group Inc.
“The impact of sustained growth in overall housing stock is reflected in the continued decline of lease rates and reduced tenant loyalty amidst abundant and more affordable options,” Matthew Green, the Los Angeles-based broker’s head of U.A.E. research, wrote in a report today.
Home rents fell about 3 percent on average in the first-quarter compared with the previous three months and 17,000 new homes are expected to be completed this year, according to the report. Office vacancies are set to climb from a record high of nearly 35 percent as concern about slower economic growth prompts companies to cut costs and halt expansion.
Abu Dhabi’s government is trying to revive a market where properties lost half their values after the global credit crisis ended a speculator-driven boom. The government required all its employees to live in Abu Dhabi to qualify for a housing allowance that often comprises a large portion of workers’ pay. Thousands of workers live in Dubai to take advantage of lower rents.
Home sales are mostly being driven by occupiers and there are “very low levels of investment activity,” Green wrote. Average prices have stagnated at 9,150 dirhams ($2,500) to 13,500 dirhams a square-meter and many owners are “simply unwilling to drop any lower, even if it means holding units indefinitely,” Green wrote.
Prime office rents within Abu Dhabi’s premium developments have remained flat at 1,600 dirhams to 1,900 dirhams a square meter per year. Rates are often coupled with incentives that can include two months of free rent a year on five-year leases, the report said.
Offices in secondary locations, meanwhile, are seeing “significant rental deflation” with a drop of around 3 percent over the previous quarter. Rents range from 675 dirhams to 1,250 dirhams a square meter per year, the report said.
“We are beginning to see the first signs of renewed interest in office space” from companies based in the U.S. and Europe and transactions may pick up over the longer term, Green wrote.
Yesterday, Arabtec Holding PJSC, the U.A.E’s biggest construction company in which Abu Dhabi’s state-controlled Aabar Investments bought a 21.6 percent stake, signed a 10-year lease in the 59-floor office tower in Abu Dhabi’s World Trade Center.