Economy slowing, lower oil prices affecting Abu Dhabi’s rental markets

Average housing rents in Abu Dhabi have fallen for the first time in three years, driven by thousands of job cuts and an increase in the cost of living.

The first signs of long expected falls in housing rents in Abu Dhabi started to appear in the second quarter, according to new reports from property brokers JLL and CBRE.

Residential property rents in Abu Dhabi have fallen for the first time in three years at a time when jobs are being cut and the cost of living is increasing.

The average rental price of a prime two bedroom apartment fell by 2% in the second quarter of 2016 compared with the first quarter, according to the latest report from real estate services firm JLL.

The latest report from property firm CBRE also shows that there was a 2% fall in apartment rents in the second quarter of the year while it adds that villa rents fell by an average of 1%.

‘While supply remains stable, the reduction in demand has now started to cause vacancy rates to nudge upwards, indicating we have now reached a tipping point with rents declining for the first time in three years,’ said David Dudley, head of JLL’s Abu Dhabi office.

The firm believes that plans by the state owned oil company Adnoc to cut 5,000 jobs by the end of the year, and staff cuts at other government companies, means fewer people are attracted to the emirate and apartments are left empty.

JLL is forecasting that rents will fall further this year as more expats and their families are expected to leave as their tenancies expire at the end of the academic year.  ‘We expect the impact of these job cuts and reduced incomes to become more pronounced over the summer, as some people look to either leave or downsize. This will push vacancy rates up further and cause rents to decline,’ explained Dudley.

The CBRE report also points to a drop in incomes as being behind demand falling for rental apartments with tenants looking for cheaper lets due to a combination of falling wages, a reduction in allowances and benefits, the removal of fuel and water subsidies and a new 3% municipality fee on Abu Dhabi expat rentals.

‘With economic challenges expected to continue in the short term, we anticipate further deflation of high end luxury rates as reduced corporate demand creates a more tenant led market,’ said Matthew Green, head of research in CBRE’s office.

He believes that with just 14,500 new homes expected to come to the market over the next two and a half years, around 5% of the current housing stock most of which will be aimed at the upper end of the market, rents for more afford¬able homes are likely to remain fairly flat.

‘With limited stock against current requirements, rental rates for affordable units have remained steady with minimal fluctuation recorded against the general slowdown observed in the upper segments,’ he added.

But Dudley does not think there will be a sharp decline in rents, rather a soft correction due to economic factors. However, he warned that while the Abu Dhabi government’s prudent approach to re-prioritising spending in the current period of low oil prices if it continues the market could enter a more damaging downward spiral.

‘The extent to which a down turn can be mitigated depends on the return of domestic government spending in spite of a reduction in oil revenues,’ he added.

source: Property wire