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Low demand spurs flexible Abu Dhabi real estate deals - Cluttons

Low demand spurs flexible Abu Dhabi real estate deals - Cluttons
(Photo Credit: Arabianeye - Reuters)

Abu Dhabi – Mubasher: Landlords are starting to offer more flexible rates and incentives to occupants in order to fight against the high vacancy rate in Abu Dhabi’s real estate market, as weak economic conditions, rising inflation, and high costs of living are curbing demand, according to real estate consultancy Cluttons.

The residential market saw a decrease in capital values by 6% in 2016, and an even further dip of 1.9% in the first quarter of 2017, dragging the annual rate change to a drop of 7.6%, according to the Cluttons Abu Dhabi Property Market Outlook for Spring 2017.

Evolving market conditions have kept rental values under pressure, as average rents across Abu Dhabi’s residential investment areas fell 12.6% in 2016 – a decline that has lingered into Q1-17 with a further 2.3% drop, registering 15% higher rents year-on-year and paving the way for expectations of further contractions.

Head of Cluttons Abu Dhabi Edward Carnegy commented on the price corrections in the market, indicating that “anecdotal evidence shows that organisations continue to trim senior level executive positions, which are a key source of requirements for high end homes. In other cases, companies are removing housing allowances to cope with the financial pressures, which is making it harder for potential buyers to purchase a property.”

Rents are likely to further decline 5% to 7% in 2017, as the residential sales market will likely fall by 8% to 10%, according to Faisal Durrani, head of research at Cluttons.

From a commercial perspective, office rents have also softened, as the liquidity squeeze faced by the private sector due to falling oil revenues resulted in the cancellation or delay of several high profile projects across the Abu Dhabi. This caused rents in high-tier markets to dip back throughout 2016.

However, one person’s loss is another person’s gain, as occupants now have the upper hand in terms and rent negotiations and a wider variety of residences or commercial units to choose from.

Cluttons expects rent corrections of 5% to 10% by the end of 2017, depending on the market’s ability to shrug off the drag generated by low oil prices.