The report found that across both emirates, buyers and renters continue to commute between the cities necessitating an aggregate evaluation of the markets. “Even if the supply-demand patterns differ between Abu Dhabi and Dubai, the two main residential markets in the UAE are relatively interchangeable, which creates greater fluidity in demand and pricing trends,” said Ms. Jesse Downs, Director of Research & Advisory Services at Landmark Advisory.
Cumulative analysis of both markets indicates an average vacancy rate of 10% in 2010, which gradually increases to peak at 12% in 2012. According to Ms. Downs, “While all housing supply in Dubai is not a perfect substitute for Abu Dhabi housing demand, the current vacancy rates in areas preferred by Abu Dhabi commuters are within range of these estimates. These figures tell a more robust story than when simply evaluating each market in isolation. Importantly, Abu Dhabi companies also benefit through the availability of affordable and often higher quality housing alternatives for staff.”
In Dubai, Landmark Advisory found that the apartment sale prices and rents continued to erode on the back of increasing supply with average quarterly declines of 6.3% and 5.8% respectively. In terms of residential volumes, sales and rents diverged, with sales volumes down 30% QOQ and rental volumes up approximately 25% QOQ according to Ms. Downs: “Various factors continue to push Dubai residential sale prices and volumes down like increasing supply and the existing limitations on the residency visas for property owners. Equally important, limited mortgage activity means investors continue driving demand.”
“The widespread expectation of additional price erosion keeps many investors on the sidelines waiting for opportunistic investments,” continued Ms. Downs. “In some cases this is a fallacy. Although we expect the average residential sale price to continue to decline into 2012, high quality, well position properties in well designed communities with limited supply pipeline are expected to remain relatively stable.”In Abu Dhabi, the asked apartment sale prices fell by 9%, but the actual transaction prices remain relatively unchanged amid low transaction volumes in Q3 2010. Villa transaction sale prices fell by 6%. Commenting on this Ms. Downs said: “The decline in listed sale prices in the capital shows that investor expectations increasingly reflect market realities. Sale volumes, especially for apartments, remain low because of further handover delays and regulatory uncertainty. Once projects like Marina Square commence handover and a title deed system is implemented, we expect volumes to improve.”
Turning to the commercial office market, the Q410 report found that both Abu Dhabi and Dubai continue to face supply pipelines that will virtually double the existing supply in both cities. In Abu Dhabi, office sale prices declined 4%, while lease rates declined 6%. In Dubai, capitalization rates for offices continue to increase as office sale prices declined 6.2%, while lease rates declined 11%.
“Albeit at a more modest rate, companies are still drawn to Dubai by the high quality of infrastructure and tax-free status. Price, rent and supply trends create challenges for existing owners of offices space in Dubai, but this also creates opportunities by augmenting the existing attractiveness of Dubai as a national, regional and global hub, concluded Ms. Downs.”
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