Incentives galore to woo buyers, tenants
dubai — Rents across Abu Dhabi’s residential investment areas decreased by 2.3 per cent during Q1 2018, following the 4.3 per cent drop during Q4 2017, estimates Cluttons, a real estate consultancy. The latest change leaves rents 11.5 per cent lower than this time last year.
Tenants are wary of job losses and the rising cost of living, associated with the introduction of VAT and a general upward creep in inflation, which has left many household budgets under tremendous pressure.
“As a result, tenants are negotiating reductions at renewal, while landlords are increasingly receptive to meeting the expectations of tenants by agreeing to close deals below headline asking rates, and they are offering flexible rental payments in multiple cheques to attract tenants as well as other incentives such as zero commission payable and rent free,” said Edward Carnegy, head of Cluttons Abu Dhabi.
According to a Cluttons report, Abu Dhabi’s residential market has the potential to start stabilising by the end of 2018, but until then further softening is expected to persist.
“The additional declines will be catalysed by rising levels of property handovers in locations such as Yas Island and Al Raha Beach by Aldar, which will curtail chances for a quicker recovery. We expect a decline of a further 5 to 7 per cent for both residential rents and values during 2018, largely as supply and demand will likely remain out of kilter for a while yet. Positively, bulk corporate leases are back on the agenda for some firms as they move to secure better lease terms, or indeed better quality accommodation for staff, while also making a saving,” Faisal Durrani, head of research at Cluttons, explained. The very top of Abu Dhabi’s sales market has been relatively positive and is showing signs of stabilising. Sea-facing villas on Saadiyat Island, for instance, which remain the most expensive residential property type in the capital at Dh1,700 psf, have seen no movement in prices for 2 consecutive quarters.
“This trend is likely to help tempt buyers back into the market especially as we feel the stability is likely to persist,” said Carnegy. “In fact, we have noted a marginal uptick in demand from Emirati buyers predominantly looking for second homes or expanding their buy-to-let investment portfolios on Saadiyat Island.”
Office market
The office market in the capital is also still facing the pressures of firms downsizing or consolidating operations. While rents across the city’s prime office buildings held steady during Q1, deals continue to be concluded below headline asking rates in many cases. In secondary and tertiary buildings, rates have dropped by as much as 30 to 50 per cent over the same period.
Carnegy said: “In some cases, rents in tertiary buildings have fallen to nearly the same level as prime warehouses. However, these substantial drops do not accurately reflect market conditions and are a result of landlords holding out on rent reductions for extended periods of time, before being forced to make drastic adjustments due to increased vacancy as they chase the market down.
“We are aware of a number of instances where landlords are now
Positively, bulk corporate leases are back on the agenda for some firms as they move to secure better lease terms Faisal Durrani, Head of research, Cluttons
also willing to cover agency fees. This is a seismic change in behaviour as up to 60 or 70 per cent of landlords are now willing to do this, compared to almost none a few years ago. In addition to this, many are also willing to offer increased parking provisions, increased rentfree periods, shorter leases with increased flexibility.”
Rising public sector spending is expected to boost GDP growth, which in turn should aid in the return of more robust levels of occupier requirements.
“However, this is unlikely to materialise for at least another 9 to 12 months. Until the market approaches that point, we expect further office rent drops of 5 to 10 per cent on average, across the board. In parallel, occupiers from the banking and public sectors are testing the waters, attempting to capitalise on the softer rents; a clear indication that some are sensing the bottom of the current property cycle,” concluded Durrani.
— deepthi@khaleejtimes.com