Rents at Abu Dhabi's Reem Island may drop once 'dust settles' after summer

Housing rents for existing tenants on Abu Dhabi’s Reem Island could fall by as much as 10 per cent by the end of the year, estate agents say.

The effect of job cuts across the oil and gas and construction industries and the fall in global oil prices could finally persuade landlords on Reem – the part of the city where most new supply is coming on stream – to lower rents for existing tenants starting by the autumn.

There are about 245,000 residential units in the newer areas of Abu Dhabi, with 4,000 more expected to enter the market this year, according to JLL.

Many of those homes will be on Reem Island, where the property broker predicts rents could dip by a 10 per cent after having rocketed up by 33 per cent between 2013 and last year.

“We expect vacancy rates to increase further in the second half of the year due to job cuts and people looking to either leave or downsize as their tenancies come up for renewal. This is expected to lead to a further discount in rents at a time-lag to vacancy increasing,” said David Dudley, the head of JLL’s Abu Dhabi office.

Mr Dudley said that demand slowed during the last quarter, amid announcements of job cuts and “a continued pause in government spending”, but in the short term, landlords had been holding the line on rents. “While there are signs of vacancy rates starting to increase slightly, many landlords are still able to maintain the same rental levels – with tenants often accepting this to avoid the additional costs and hassle of moving.”

According to property broker Asteco, rents for flats across Abu Dhabi fell by 2 per cent during the first three months of the year compared with the previous quarter, with the biggest drops concentrated on Reem Island.

It reported that apartment rents in the island’s Shams Abu Dhabi area dropped by 6 per cent quarter-on-quarter, ranging from Dh95,000 to Dh120,000 for a one-bed unit, or Dh130,000 to Dh170,000 per year for a two-bed.

But brokers say that these reports are heavily weighted towards new tenancies rather than renewals.

Existing Reem Island tenants report that landlords are continuing to increase rents, knowing tenants would rather stay than have to pay the thousands of dirhams in agency fees for new homes.

“We are aware of reports saying that rents in Abu Dhabi are falling but realistically it is unlikely that we will see many rents fall in Abu Dhabi until after the dust settles in October,” says Ben Crompton, the managing partner of Crompton Partners.

“By then, everyone who is moving out will have done so and landlords will have a better idea of the situation.”

Mr Crompton says that the large number of individual landlords on Reem Island means rent reductions are more likely there than elsewhere in the city, such as on the Corniche, where property is often owned by high-net-worth individuals and institutions better able to absorb the hit from vacancies.

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