Villa and apartment rents in Abu Dhabi have continued to fall on average between 7% and a more pronounced drop of up to 15% for lower quality properties according to the latest report by Asteco, the largest property services company in the United Arab Emirates

During the second quarter of 2010, apartments have fallen at a similar rate to that witnessed during the first quarter and that trend is set to continue throughout 2010 as more supply comes on to the market. It is estimated that 4,500 apartments have been constructed with delivery underway, with an additional 8,000 apartments due for completion by the end of 2010, says the Asteco report on the Abu Dhabi property market for Q2 2010 published today (11 July 2010).

Commenting on the report, Asteco Property Management CEO Elaine Jones said “The Abu Dhabi real estate market is in a period of transition moving away from an under-supplied landlord controlled market to one with improving quality and choice offering tenants more negotiating power. These changing market dynamics will continue to put downward pressure on rents, particularly older stock, which should be interpreted as a healthy move for an improvement in business.”

In terms of new property, most of the high-end supply will be concentrated on Reem Island and Al Raha Beach, with mid-end supply coming up on the Abu Dhabi Main Island and more affordable lower end stock on the mainland, which includes the first phase of Al Reef Downtown.

“It is a healthy sign for the market that enquiry levels have increased due to improved availability and a decline in rents. So far the majority are from existing tenants relocating within the city,” said Paul Maisfield, 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.

Meanwhile villa rents in the capital have continued their downward trend of 2-8% for traditional UAE national-owned investment villas, whereas more significant declines of up to 20% have been recorded for the five bedroom expatriate-owned villas in Al Reef, clearly highlighting a desire to achieve occupancy to cover property expenses, the report says.

Overall, across central areas as well as master-planned communities such as Al Raha Gardens and Sas Al Nakhl, three and four-bedroom villas have in some cases maintained their rental yields due mainly to prices falling within range of a typical housing allowance. With new supply in Khalifa City and Mohammed Bin Zayed City, the lower-end of the market has corrected the most with rental reductions from 5-15%, says Asteco.

In terms of sales, on average, Asteco says prices for apartments have remained unchanged and demand continues to be entirely focused on those developments close to completion.

“Sales activity was relatively flat, but with the first phases of Reem Island and Al Raha Beach completing, we anticipate improved demand from owner-occupiers. Quality will be the catalyst and Al Bandar at Raha Beach is likely to be the most sought after place to live in Abu Dhabi,” said Maisfield.

Elsewhere, villa sales have not seen any significant fluctuation in price over the last quarter. This is due to a number of contributing factors, such as low levels of transactions, and UAE nationals enjoying good rental returns from their investment properties.

“There is a gap in the market for good quality, value-for-money villas in master planned communities that are available for sale to expatriates. Most existing compounds suffer from high density levels with limited retail, recreational facilities and open space,” added Maisfield.

The Abu Dhabi office market sector has witnessed a limited number of open market transactions, with the majority of bulk leasing being taken up by the government, but with little detail on prices. According to Asteco the amount of activity has increased over the previous quarter, with many companies examining relocation options for better quality, layout and parking. It is noticeable that although commonly landlords have been out of touch with tenants’ budgets, they are becoming much more willing to negotiate especially for larger requirements.

In Al Ain, Asteco says the overall trend has continued from the first quarter, with a substantial drop in terms of residential rentals of up to 19% for one bedroom apartments and 5% for three bedroom villas. This is due in the most part to increased supply and reduced prices in Dubai luring residents back. The Al Ain office market showed virtually no signs of movement over the past three months.

For more details, please visit www.asteco.com