Real Estate & Construction
A Place To Rent
The crash of 2008 is still fresh in the minds of many realtors; however, the residential market has experienced a few years of rising house prices that are likely expected to stabilize. House prices fell by 55% from its high in 2008 to its low in 2012. According to JLL, prices then rose by 25% per year for two years providing a compound interest of 56%. In 4Q2014, house prices were flat after falling oil prices and equities markets, as well as weaker investor sentiment affected the sector. This was the first time since the beginning of 2013 that prices didn’t rise. This slow down in rising prices may come as relief to some with JLL suggesting it may well take some of the heat off the market. Rental prices have also been increasing for the past few years; however, due to a relative shortage of quality products prices will most likely not fall but continue on a steady and stable rise. In 4Q2014, rental prices increased by 4%. Still, there are concerns that because of the slump in oil prices, government spending in the short term is likely to drop; however, projects started before the falling oil prices will still continue, helping to create jobs and cater to the rising demand for residential property.
To help better monitor rental prices in Abu Dhabi, in February 2014 it was announced a rental price index would be compiled to better inform renters and landlords of market conditions. The index will be governed and complied by the Department of Municipal Affairs, the Department of Economic Development, the Urban Planning Council, and the Abu Dhabi Council for Economic Development. According to JLL, the average price of a two-bedroom apartment rose from $32,000 in 1Q2013 to 35,300 in 2Q2013, and then to $38,100 per annum in 4Q2014. It is hoped that the index will help to regulate the market and provide renters with a better idea of market prices. The index and its organizers will also help settle disputes between landlords and tenants. The index will be welcomed by many tenants as since the government removed the rental increase cap of 5%, some people felt some landlords might abused the lack of a cap; however, there is little evidence to suggest widespread rental hikes with Bayut.com suggesting a 2.9% increase on a quarter to quarter basis in 2Q2014, while as mentioned above in 4Q2014 rental prices increased by 4%. According to the Abu Dhabi Residential Property Price Index: Rental Prices, between January 2014 and September 2014 the index (January 2009=100) rose from 63.4 to 66.5, which represented a 4.89% increase.
The current stock, as of 4Q2014, stood at 246,000 units according to JLL. Over 2015, 7,000 more units are expected to come online while in 2016 a further 11,000 will be completed. A number of new residential projects were announced in 3Q2014, including Mamsha Al Saadiyat, which will be the first residential project within the Saadiyat Cultural District. The project will comprise of nine low-rise building that will feature townhouses and apartments. Most of the future stock planned for Abu Dhabi will be concentrate in large developments, such as Rawdhat Danet and Reem Island, while a significant amount will also come from national housing developments. Construction work on three residential buildings within Meena Plaza in Port Zayed also restarted toward the end of 2014 after construction was suspended. In addition to this, Aldar Properties announced the sale of the B2 building on Reem Island to MAG Group and Fortune 5 Investments.
Office stock over the next two years is set to increase; however, over the past six years since the crash, rental prices have gradually fallen from a high of nearly $1,089 per sqm per month in 4Q2008 to $419 per sqm per month in 1Q2014 for Grade-A office space. As of 4Q2014, Abu Dhabi total stock stood at 3.2 million sqm, while over 2015 a further 232,000sqm will come online and another 80,000sqm is expected for 2016. Vacancy rates in 3Q2014 stood at 25%, a drop on the same period the year before when vacancy rates were 38%. Grade-B office stock averaged at $321 per sqm per month according JLL in 1Q2014 and prices remained stable; however, this is expected to decrease as new stock comes online.
Demand for office space is largely led by government entities, with the largest occupiers being government organizations, publicly owned banks, and sovereign wealth funds, many of which have purpose built head quarters. Foreign companies have been showing a growing interest in setting up in Abu Dhabi, but currently they demand smaller scale buildings. This area of demand is largely dominated by professional services, financial services, and engineering and construction service companies. Unfortunately, a lack of supply in small size, Grade-A office space is acting as something of a barrier to more companies setting up shop in the capital. Because of this, the office sector is somewhat reliant on the government to expanding and encouraging the economy while also increasing private sector activity to balance the sector. A number of government-backed free zones are set to try and do just that. Al Maryah Island, Global Marketplace, Masdar City, twofour54, Kizad, and Skycity are just a few of the up and coming free zones with new office space looking to cater to the private sector with incentives and tax breaks, as well as ample Grade-A stock for international and domestic companies.
Shopping centers and the UAE almost go hand in hand, so it might be a surprise to some that between the end of 2013 and 3Q2014 there were no deliveries of new stock onto the market in the retail sector. In 4Q2014, however, 416,000sqm of gross leasable area (GLA) came online taking Abu Dhabi total capacity to 2.62 million sqm of GLA. This new delivery was largely offered in the form of Yas Mall on Yas Island, Capital Mall with 9713 BMC, National Towers on the Corniche, and Al Shamkah Community Mall in Al Shamkah. Vacancy rates stood at a modest 2% in 3Q2014, which was the same the period the year before according to JLL. In 2015, another 42,000sqm of GLA is currently under construction and is expected to be available while over 2016 a further 95,000sqm of GLA will come online. Average retail rental prices have remained relatively stable at around $816 per sqm per annum on Abu Dhabi Island in 3Q2014, up from $544 per sqm per annum in 3Q2013 according to JLL. This slight rise has been attributed to the increased footfall currently being experienced as new malls become more established and well known in the city. While average retail rental prices off Abu Dhabi Island have fallen slightly from $517 per sqm per annum in 3Q2013 to $506 per sqm per annum in 3Q2014 according to JLL.
Abu Dhabi’s real estate sector appears to have put the dark days of 2008 behind it, and residential prices are slowly rising. Worries about excessive rental hikes after the scraping of the price caps appear to be unfounded at the moment but the fear is still murmuring around the sector. In regard to office space, large vacancy rates and a reliance on government entities for occupation could cause problems, especially as since oil prices are down and government spending is not expected to drastically increase. However, a number of new free zones are hoping to attract a myriad of foreign companies to the Emirate. The retail sector is holding strong while prices remaining stable and vacancy rates low.
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