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 Real estate markets in Dubai and Abu Dhabi were active in the third quarter of this year, with some unusual trends developing in both cities, a report by Landmark Advisory has revealed on Sunday.
“Our outlook remains tenuous, but the recent burst of activity raises exciting new questions about where these markets are headed,” said Jesse Downs, director of research and advisory services at Landmark Advisory.
Residential prices in the UAE were more unpredictable than in previous quarters, says the report.
In Dubai, villas accounted for 60 per cent of residential sales, with prices increasing 8 per cent in the first nine months of the year. The report identifies that projected villa supply and current sales inventories are currently relatively stable leading Landmark Advisory to predict that villa prices are likely to remain stable in the short term.
“If investor confidence and inventories are stabilising, then we may have possibly reached a price floor for villas,” says Downs.
Apartment prices fell by a minimal 3 per cent in comparison to a 17-per-cent drop during the second quarter.
Downs said apartment inventories remain stable, with the majority of sellers holding prices and because many distressed sales are no longer available.
The report also found that despite regaining some stability, overall supply dynamics do not support a general, short-term price recovery for Dubai apartments.
“In Dubai, apartment demand gravitates toward more affordable units, but financing appears to be an issue, with financed apartment sales declining to 14 per cent in the third quarter,” continued Downs.
Leasing rates for villas in Dubai have increased 6 per cent, in line with sales trends. “This is due to considerable demand during the summer months, primarily from relocation within the UAE, but also from a limited amount of new demand from expatriates moving from abroad,” she said.
The Landmark Advisory report cautions that these trends reflect market averages; while rents went up in the majority of developments, they remained stagnant in a few villa communities. Unlike the villa segment, Dubai apartment rents dropped 17 per cent during the third quarter.
Dubai’s office market continues to suffer from weak demand, which brought office prices down another 10 per cent in the third quarter. Office rents, however, declined only 4 per cent over the last quarter. Downs explained that “office rents changed relatively homogenously across all areas.”
Turning to Abu Dhabi’s residential market, average listed sale prices increased, but most real transactional prices did not. Bid-ask spreads reached 15 per cent to 20 per cent in the third quarter, representing a sharp increase over last quarter, when Abu Dhabi spreads were only 5 per cent to 10 per cent.
“This means that listings in Abu Dhabi are increasingly inconsistent with real market values,” says Downs.
The report also shows that market-wide average listed prices for apartments and villas increased 8 per cent and 10 per cent, respectively, but “transaction patterns show that only a tiny minority of sales reflect this improvement,” said Downs.
Abu Dhabi’s leasing market showed a similar trend, with asked rents appearing to stabilize, while agreed rents kept falling. “Landlords are gradually adapting to Abu Dhabi’s shifting rental market,” explained Downs.
“For example, landlords actually used to prefer high vacancy rates over low rents, but are now increasingly willing to negotiate discounts and multi-cheque agreements with prospective tenants.” Despite the apparent current stability of asked rents, supply flows are likely to increase downward pressure, especially for lower quality and larger apartments. Landmark Advisory predict that off-island villa rents are likely to suffer the biggest declines.
The office market in Abu Dhabi remained paralysed despite a relatively small 3 per cent decline in listed sale prices. In the short-term, average office prices are likely to fall further, as most freehold office supply is too far from completion to attract buyers. Rents fell between 5 per cent and 15 per cent on Abu Dhabi Island, but off-island rents fell 20 per cent in the third quarter.
“Unlike the sales market, a lot of non-freehold leasable supply will be delivered in the next year, which will continue to push down office rents. In addition to this, falling demand, caused by delayed or cancelled office expansions will also negatively affect Abu Dhabi office rents,” she said.
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