Supply crunch to raise Abu Dhabi rents further this year

Average rental rates for apartments at Marina Square on Reem Island rose 8 per cent during 2013. At the end of the year the average rental rate for a studio was from Dh65,000-68,000, one-bed Dh75,000-Show more

Abu Dhabi rents are set for further gains after rising as much as 18 per cent last year as a supply crunch hits the market.

Rents in Abu Dhabi rose by up to 18 per cent during 2013 and are set to gain further this year as demand outstrips supply according to Asteco, the property broker.

Just 8,500 homes are scheduled for completion in the capital this year compared to as many as 28,000 in Dubai.

Rents for mid-market apartments in investment areas such as Al Bandar in Al Raha Beach grew the most last year as many Abu Dhabi government employees relocated to the capital to comply with a decree requiring them to reside in the emirate.

Asteco said that rent for an average two-bedroom apartment in central Abu Dhabi currently stands at Dh70,000 a year. Rents in ultra-high-end developments such as Etihad Plaza and Saadiyat Island remained broadly static, Asteco said, as wealthy residents stayed put. But high-end apartments in buildings such as Golden Tower in Al Nahyan Camp increased 11 per cent.

Asteco said it was unable to provide exact figures for rents in lower-end apartments in the city centre because it had changed its methodology for measuring them during the year. However, it said that it believed those rents had also increased slightly.

The estate agent said that with only 8,500 new homes expected to come to the market over the coming year and no rules restricting rent rises for existing tenants they could continue to soar.

Asteco added that the Abu Dhabi government’s decision in November to remove a cap limiting rents for existing tenants to annual increases of 5 per cent was pushing rents up in some areas. However, it reported that average rents increased by only 5 per cent over the fourth quarter of the year.

“The removal of the rent cap has made things interesting,” said the Asteco Abu Dhabi general manager, Jerry Oates.

“Overall we believe most landlords have stayed within a 5 per cent increase since the cap was removed for existing tenants.”

He added: “There has been resistance to any increase at all in some government LEASED buildings while in some parts of the city such as Tourist Club area we have heard of landlords putting up prices significantly because they have spent years watching higher rents go past.”

The figure tallies with data from Jones Lang LaSalle and Propertyfinder.ae data released earlier this month which found that rents in the city increased by 16.7 per cent over the year.

Asteco also reported that studio apartments and small one-bedroom flats were the most popular in 2013 because the city was attracting younger tenants without families.

It said that developments such as Al Reef, Hydra Village and MBZ/Khalifa City were experiencing some of the fastest rental growth, as tenants were priced out of other developments.

Asteco declined to comment on whether the increase in popularity for this type of housing was due to Dubai-based government workers taking on leases for cheap flats to get around the housing decree and remain living in Dubai.

Asteco said that it expected rents to continue to rise in Abu Dhabi over the coming year as demand continues to outstrip supply with only 8,500 new homes expected to be completed in the capital in 2014 (excluding Emirati housing).

Overall, Asteco said 2013 was the year when apartment prices in Abu Dhabi started to rise again. The agent reported that on average apartment sale prices increased 11 per cent over the three months between October and December and up by a staggering 29 per cent over the year.

However, it said that the sales numbers came from a very low base and included a relatively small number of sales.

Asteco said that demand from purchasers was particularly pronounced in the Al Raha Beach area, where the average price of an apartment is now between Dh1,175 and Dh1,425 per square foot.

It added that sales prices at Reef Downtown, an affordable development off-island, have outperformed the market with a 50 per cent sales price growth compared with last year. Current rates at Reef Downtown start from Dh825 per square foot.

“We would expect to see price growth to continue throughout 2014, albeit at a slower pace than the previous year,” Mr Oates said.