The Abu Dhabi property market showed signs of fragmentation in the third quarter as average residential rental prices saw a slight quarterly decline with demand levels having weakened, said a report.
The average residential market rentals saw a marginal decline of around one per cent quarter on quarter, whilst maintaining around two to three per cent growth over the past quarters, stated global real estate consultancy firm CBRE in its Q3 2015 Abu Dhabi MarketView.
The emirate's residential market, however, enjoyed an annual growth rate of close to eight per cent during the period, it added.
The negative impact of the economic slowdown is evidently being felt in the Abu Dhabi residential market, with rents finally being checked after a series of quarterly rental growth, which stretched back to the third quarter of 2013.
Mat Green, the head of research and consultancy UAE, CBRE Middle East, said: "The market is showing some signs of fragmentation, with older and poorer quality apartments - particularly those in secondary locations - experiencing rental declines and these declines have dragged down the performance of the wider market."
"However, residential villas depict a contrasting trend, recording a small increase of one per cent during the third quarter of 2015. The limited supply, particularly within the main Abu Dhabi island, reinforced the steady performance of this segment," noted Green.
Amongst residential property types, smaller units such as studios and one-bedroom apartment units remain in strong demand. On average, the annual rentals for upper middle and high-end properties ranged from Dh60,000-105,000 ($16,331 to $28,580) for studios and Dh85,000-150,000 ($23,136 to $40,828) for one bedroom units.
In comparison, the rental prices for inferior housing units and those situated outside in tertiary locations ranged from Dh30,000-50,000 ($8,165 to $13,609)/unit/annum for studios and one bedrooms respectively, said the CBRE report.
The price differentiation is attributed to a combination of factors including quality, location, facilities and the proximity and accessibility of residential schemes to key commercial and social centres, it added.
According to Green, the higher income individuals and corporate occupiers continue to show a preference for master-planned developments, particularly established communities which offer residents access to facilities and services.
"As a result, prime developments across the capital have shown greater resilience to the emergence of more challenging market conditions during the quarter. This is reflected in the widening rental gap, as rentals for new leases remain unchanged from the previous quarter despite the prevailing market conditions," he added.
Whilst there are clearly some headwinds for the residential market, the low level of expected completions over the next three years will help provide a cushion against the ill effects of the declining commercial market and a slowdown in some other sectors of the economy which ultimately influences demand for housing, said the report.
On average, the emirate will see around 8,500 new housing units per annum over the next three years, in contrast to the 11,000 units which have been completed annually over the past five years.
Whilst the sales market has been somewhat subdued in recent quarters, key investment locations, such as Raha Beach and Reem Island, have witnessed marginal growth in annual terms. The prices for more affordable masterplan developments, such as Al Reef and Hydra Village, have remained unchanged during the quarter.
According to the MarketView, the local office market is starting to feel the strain of lower oil prices with declining demand and rentals.
With the oil and gas and public sectors serving as the primary office demand generator, demand for office space from both new occupiers and expansion of existing end-users has started to slow. These conditions have also had a knock- on effect on other parts of the office sector, including some professional service companies, such as law firms, which rely heavily on work from government and government-related institutions, said the report.
"Offices at Mubadala’s Abu Dhabi Global Market (ADGM) Square are the notable exception to these rents, with asking rates starting from Dh2,900 ($789)/sq m/annum. However, we understand that leasing activities are currently on hold whilst the ADGM Regulatory Authority finalises the licensing and operational regulations," sated Green.
"Whilst the wider market is expected to face further deflation of rental rates, the prime segment is anticipated to show greater resilience to prevailing conditions. With the majority of Grade-A office developments achieving high occupancy rates and with more limited stock overall, prime rents are expected to remain broadly stable in the short-term," he added.
On the hospitality sector, CBRE said there has also been a slight increase in the average ADR ( average daily rate) which was recorded at just under Dh500 ($136)/room/night.
Abu Dhabi’s year-to-date occupancy rate (up to August 2015) is around 72 per cent; which is marginally up on the same period last year when occupancy rates averaged close to 71 per cent, stated the expert citing data from STR Global.
According to the Abu Dhabi Tourism and Culture Authority (ADTCA), total guest arrivals into the emirate during the first half reached close to two million, reflecting healthy growth of nearly 17 per cent as compared to the same period last year. This generated a total of 5,728,765 guest nights, up 11 per cent over last year.
The positive impact of higher visitor numbers also translated into higher revenues, with hotels recording a eight per cent increase to hit Dh3.346 billion ($911 million).
This was driven by a 11 per cent growth in room revenue and a smaller one per cent increase in food and beverage revenue.
Commenting on the outlook, Green said: "With on-going economic challenges brought about by a period of lower oil pricing, US dollar strength, and sustained global uncertainty, the outlook for Abu Dhabi’s real estate market is for a period of further deflation in the short term."
"We expect to see a fragmented marketplace, with more pronounced declines to be experienced in secondary locations and for inferior products. As a result, we forecast that prime developments in the office and residential sectors, will see steadier performances across rentals and occupancy rates, aided by the availability of limited available stock, both currently and within the future development pipeline," noted the expert.
"Whilst the hospitality market performance has been steady in recent quarters, there may still be some short term negative impacts to be felt as a result of declining demand from government and corporate activity," cautioned Green.
"However, as yet the slowdown which has impacted Abu Dhabi’s commercial market, has not manifested itself in the form of negative ADR or occupancy growth," he added.