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News Release

Abu Dhabi

Underlying Fundamentals Remain Strong Despite Short Term Softening Of Abu Dhabi’s Residential Market


​​​​JLL, the world's leading real estate investment and advisory firm, today has released its fourth quarter (Q4 2014) Abu Dhabi Real Estate Overview report covering the office, residential, retail and hospitality market sectors.

Commenting on the report, David Dudley, Regional Director and Head of Abu Dhabi Office at JLL, Middle East & North Africa, said: "Our report highlights a short-term softening of the residential market. Following two years of 25% annual growth, average prime residential prices have remained flat for the first time since Q1 2013 – principally due to the recent decline in oil prices, equities markets and investor sentiment.  The residential rental market has also softened.  While average prime residential rents increased by 4% during Q4 2014, rental growth is expected to reduce from double-digit annual growth to single-digit growth this year, due to the impact of an expected slowdown in government spending.

"As for other sectors, Abu Dhabi's office market continues to recover, albeit at a modest pace. Following the stabilisation of prime office rents from mid-2012 to mid-2014, rents have witnessed 5% quarterly growth for the second successive quarter as demand remains steady, annual supply completions reduce and vacancy rates reduce. The Hospitality and retail markets remain relatively stable. Hotel occupancy rates improved, but ADRs remain under pressure. The retail market has seen the opening of Abu Dhabi's largest mall (Yas Mall) over the past quarter and while no further significant completions are forecast for 2015/2016, there are a number of major new  super-regional malls proposed to open in 2017/2018."

Summary highlights, Abu Dhabi Market Overview, Q4 2014:

  • Residential sales market:  Abu Dhabi's residential sales market is strongly linked to economic growth and investor sentiment and consequently is sensitive to the recent decline in oil prices and equities markets.  The prime residential sales market had experienced high rates of growth, averaging 25% annual growth for both 2013 and 2014.   Following quarter-on-quarter growth since Q1 2013, prime average residential sales prices remained stable during Q4 2014 and are expected to remain stable during 2015.  While demand has softened, annual supply has also reduced significantly.  David Dudley commented that "the stabilisation of sales prices signifies that some of the excessive heat has now been removed from the market.  We do not however anticipate a significant decline in prime residential prices due to the relative shortage of availability of quality product".
  • Residential rental market:  Average rents for prime residential units in Abu Dhabi have increased by 17% during 2013 and 11% during 2014, with 4% growth recorded during Q4 2014.  This rental growth has been driven by major demand growth (new job creation as the government progresses major infrastructure and economic development projects combined with government policies to reduce the level of commuting from Dubai and reduce household sharing); with limited levels of new supply this has resulted in minimal vacancy rates within high quality schemes.  David Dudley commented "While we expect there to be a reduction in government spending this year due to the recent decline in oil prices, we expect employment creation and residential demand growth to be sustained from projects commenced while the oil price was high. Given a continual shortage of high quality housing, we expect rental growth to continue, but at single-digit growth rates, rather than the double-digit rates we saw in 2013 and 2014".
  • Office market: There were limited new completions of office space during Q4 2014 with the office vacancy rate remaining stable at 25%.  Following the market correction, prime office rents had remained stable from Q2 2012 to Q2 2014. We have since seen 5% quarterly growth over the past two quarters (Q3 and Q4 2014) signifying recovery of the office sector.  As demand steadily improves and annual completions are reducing, the market-wide vacancy is now getting absorbed.  David Dudley commented "Future annual completions remain significantly lower than previous levels and with a high proportion of near-term supply being owner occupied or pre-committed and demand remaining steady, we expect modest rental growth to continue."
  • Retail market: There currently remains a limited supply of high quality malls relative to the spending power of the population, with the opening of Yas Mall during Q4 2014 being a welcome addition for residents and tourists.  Average retail rents and vacancy rates have remained stable during Q4 2014. David Dudley commented "The future outlook for retail is positive as consumer demand continues to increase from population, employment and tourism growth. However there is substantial supply in the pipeline including several super regional malls which will cause the market to become highly competitive from 2017 onwards. However, there remains a major shortage of neighbourhood and convenience retail."
  • Hotel market:  According to ADTCA, approximately 2.8 million guests visited Abu Dhabi Emirate between January and October 2014, an increase of 20% above the same period in 2013. The positive impact of this demand growth has been partially offset by further additions to supply.  David Dudley commented "While occupancy levels have increased by 6% (YT November compared to the same period in 2013), ADRs have remained under pressure, declining 4.7%. With an additional 3,150 rooms due for completion in 2015, ADR and occupancy rates are expected to remain stable or marginally decline."

David Dudley, concluded:  "The medium term market outlook remains positive, driven primarily by major government-backed economic development and infrastructure projects.  Following the recent decline in oil prices, we expect that some projects may be phased outwards; however the government remains committed to the 2030 Vision of establishing a world-class city and diversified economy.

"Development opportunities remain in selective sectors and sub-sectors and there will remain two tier market performance with significant divergence between high and low quality product (in terms of quality of location, design, functionality, asset management etc.).

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