Monday, November 01, 2010

Oversupply in Abu Dhabi residential sector to bring down rents

Project cancellations and construction delays have cut down residential supply in future by 60 percent, estimates a report by Jones Lang LaSalle (JLL), the global real estate consultancy, said.

The average rentals in apartments have fallen by 16 percent year-on-year (YOY), while in certain areas, the rents are dropping by 30 percent, JLL said in its third quarter market overview.

The report said Abu Dhabi's residential rates peaked considerably during 2008, owing to booming demand and limited supply, further contributed by the impact of the rent cap. However, the recently delivered buildings and growing vacancies in existing good quality buildings have resulted in Y-O-Y decrease of 13 to 18 percent in average rentals, the report said.

Added to this, the forthcoming oversupply in the upper segment of the market is likely to result in continued decline in average rentals. Meanwhile, the lower and mid-market segments will remain expensive, rather than being affordable, owing to shortage of supply in these segments.

The JLL report said that the current stock of 182,00 residential units will touch 251,000 by end of 2013. An additional 69,000 units will be delivered by 2013, targeting the middle, high and luxury segments.

The real estate market has seen a major decline in pricing, with average prices continuing to fall to Dh.1,100 per square feet, in third quarter, in comparison to highs of Dh.3000 during boom time.

The residential property prices in Abu Dhabi have dropped by 15 percent during first three quarters of this year, in comparison to same period last year. However, despite decreased rents, and limited transactions, and relatively stable sale prices, the residential segment in Abu Dhabi will continue to be under-supplied, the JLL report said.

Meanwhile, despite several projects being delayed, and an additional 1.5mn square meters likely to enter the market by 2013, the vacancy rate for office sector, currently stands at eight percent for the quarter, the report said.

The vacancies in office sector have remained stable in comparison to second quarter and no major supply has entered the market. Grade A rents too have remained stable, maintaining the average of Dh.2,200 per square meter per annum, as in the second quarter.

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