Average rental rates in Abu Dhabi for apartments and villas fell by 7% and 5%, respectively, during 2016 and are expected to soften further in 2017, according to the latest Abu Dhabi Real Estate Report Q4 2016 from leading consultancy Asteco. The decline will be exacerbated by new supply to the market. Approximately 1,400 residential units were handed over during 2016, and around 4,000 units – including 2,700 apartments and 1,360 villas – are expected to be handed over this year. "Although delays cannot be ruled out, this will definitely put pressure on rental rates for existing stock," said John Stevens, Managing Director, Asteco. The continued macroeconomic uncertainty will also negatively affect rents as tenants search for more affordable rates. "Residential units that were previously able to maintain rental levels due to the reluctance of existing tenants to move, are now more likely to be affected as residents in search of the best value-for-money will become more frequent. High profile corporate mergers in the pipeline are expected to lead to increased job uncertainty and could affect employee benefit packages, including housing allowances over the next few years, raising the potential for softening demand and therefore declines in market rates," added Stevens. Average apartment rents fell by 7% over 2016, whilst prime and high-end apartments declined by 6% and 9% respectively year-on-year. The average annual rent of a high-end two-bedroom property on Abu Dhabi Island falling 10% to AED141,000 in 2016; and a two-bedroom apartment in Khalidya/Bateen dropping by as much as 13%, on average, to AED146,000. Mid and lower end apartments experienced a 5% drop, primarily during the second half of last year. Similar to apartments, villa rents declined by 5% on average in 2016, with the greatest decrease witnessed in the Al Raha Beach area (10%). "Mature villas, which previously recorded high rental rates, have been affected the most, which resulted in an increase in vacancies in some communities," said Stevens. Average rents for villas on Saadiyat Island remained relatively stable over the year, which was mainly due to a large percentage of owner occupier properties. Apartment sales prices, meanwhile, decreased by 4% on average in 2016, with properties in Marina Square and The Gate both experiencing average drops of AED125 per ft2. Apartments in Raha Beach/Al Bandar and Reef Downtown both saw average price increases of AED50 per ft2 compared to 2015 figures. In terms of average villa sales prices, there was an average 4% decline during 2016. Villas in Raha Gardens fell by AED65 per ft2 and Golf Gardens by AED60 per ft2 on average. Saadiyat Beach Villas (Standard) held their value year-on-year. Stevens said: "The anticipated delivery of new residential projects is expected to increase investment opportunities, which in turn will have a positive effect on transaction volumes. Off-plan projects offering attractive sales rates and payment plans will continue to achieve good demand levels." Office rental rates decreased on average by 7% year-on-year, with a notable slowdown in office take-up and upgrades, particularly for larger space requirements. As a result landlords countered by offering smaller units, lower rental rates and more flexible payment plans. "Demand for large offices will remain subdued and landlords are expected to continue to subdivide space in order to entice new take-up," said Stevens. "New prime office projects are expected to be handed over in 2017, including Al Hilal Bank Headquarters and Abu Dhabi Islamic Bank Headquarters, which are likely to increase vacancy levels on the back of low demand." — SG
