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Abu Dhabi Rent Drop Hinges on New Supply

By Issac John  www.zawya.com

DUBAI — Rent declines in Abu Dhabi will remain closely linked to new supply entering the market, said Landmark Advisory, a leading real estate 
consultancy company.

Al Raha Beach Construction

Al Raha Beach Construction

The new rent law, which is to be implemented in Abu Dhabi this year, will also help to bring down rents in the capital in the long term, the consultancy company said in its report.

“Even before the change in the rent law, we predicted that lease rates in the capital would gradually decrease in 2010. Over time the new rental law will help to bring down rents; however, in the short-term, it is not likely to significantly impact this rent trajectory,” said Jesse Downs, Director of Research & Advisory Services of Landmark Advisory.

“Although we do anticipate an adjustment phase during which asked rents are expected to remain static, we maintain that actual rents will continue to decline,” she said.

Analysts expect the new real estate legislation in Abu Dhabi would enable landlords to evict low-paying tenants more easily. Under the new law, which is to be implemented in the UAE capital in November, judges will settle rent disputes under the umbrella of the Ministry of Justice.
While the five per cent rent cap will remain, the new legislation will allow landlords to evict tenants at the end of the lease period, after giving two months’ notice for residential property and three months for commercial property, said analysts.

The Landmark report said apartment rents in Abu Dhabi continued on a negative trajectory with an additional decline of 5-10 per cent after decreasing on average 10-15 per cent during fourth quarter last year.

“Low quality apartments declined an average of 5 per cent during January and February,” said Andrea Menown, Leasing Manager, LLJ Property, real estate agency that compiled the report in collaboration with Landmark Advisory.

“Although low quality apartments in many areas have not experienced rent changes, similar units in select areas, such as Muroor and the Tourist Club Area, declined up to 20-per cent.”

Similar forecast was given by a new study by Tasweek Real Estate Marketing and Development.

It said Abu Dhabi property prices and rents were headed south. Property Wire, an online publication, reports the property markets in both emirates are entwined and “this is likely to have a

Property Wire, an online publication, reports the property markets in both emirates are entwined and “this is likely to have a stabilizing effect with price differences between the two narrowing.”

The Landmark report said  rents in off-island communities like Khalifa City and the Mussafah area have been more buoyant than on-island communities such as Muroor or City Centre.

According to Landmark, this is because off-island communities had already experienced significant rental declines in previous quarters and rents are now very affordable.

In terms of villas, rents are continuing to adjust. “While on-island villa rents seem more resilient, off-island villa rents declined 5-10 percent in communities like Al Reef, Golf Gardens and Khalifa City A,” continued Menown.

“As more supply enters the market, from both newly completed supply and recently vacated units, landlords will need to bring their rents down in order to remain competitive. We expect an adjustment phase while landlords bring their expectations in line with market fundamentals,” said Downs.

“This phase will start in Q4-2010 and Q1-2011 when the new law will take effect. At this time more of the newly developed supply will be readily available throughout Abu Dhabi and specifically in the freehold areas like Al Reem Island and Al Raha Beach.”

According to the report, commercial rents declined an average of 10 per cent in January and February with areas such as Al Nahyan Camp, City Centre and the Corniche experiencing rent declines of up to 20 per cent.

In Q4 2009, average rents in Abu Dhabi were around Dh2,100 per square metre, but these have since fallen to Dh1,900 per square meter.

“Office demand remains focused on smaller units, as companies in the capital remain extremely price conscious and do not want to commit to large office spaces. The majority of demand for large office space is linked to government bodies or government-related companies,” said Downs.

By Issac John

© Khaleej Times 2010

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