‘Live local rule’ gives major fillip to Abu Dhabi realty

Issac John / 2 September 2013

The Abu Dhabi Government requirement for public sector workers to reside in the capital city, which became effective from Sunday, is expected to provide a major fillip to the emirate’s real estate sector, Cluttons, a leading global real estate company, said.

Steven Morgan says the government requirement has certainly contributed to the rising tenant demand that we have been recording. — Supplied photo

Despite reports that the emirate is prepared in principle to make exceptions to its policy requiring all of its public sector employees to live inside Abu Dhabi, there has been a noticeable increase in demand for housing units over the past few weeks, Abu Dhabi-based real estate agents said.
In a statement, Cluttons noted that the capital city’s  real estate sector is already benefitting from the Executive Council planned five-year investment of Dh330 billion. “The impact of the Executive Council of Abu Dhabi’s planned Dh330 billion financial injection into the emirate’s economy over the next five years has been designed to stimulate economic growth and to promote economic diversification. It is expected to act as a catalyst not only for growth within the Emirate, but the broader UAE as well, with the nation’s foreign direct investment, or FDI, appeal expected to receive a further boost,” Cluttons said.
The first quarter Business Cycle released by the Department of Economic Development reflects this upturn with a rise in the number of new business licenses issued and an increase in the number of people employed across the capital, the real estate major said.
Cluttons noted that the residential sector is seeing a further boost to demand through the government’s requirement for public sector staff to relocate to the capital.
Although precise figures for the number of Abu Dhabi government employees living outside the emirate have not been released, it is estimated at around 20,000.
In anticipation of the new rule coming into effect by September, and spurred by other positive factors, prime residential property prices in Abu Dhabi increased by five to six per cent in the second quarter of 201, real estate agent said.
According to property services firm Jones Lang LaSalle, the rise follows an eight increase during the first quarter as the emirate’s safe haven status continued to attract regional investors amid the festering political unrest in the region.
Steven Morgan, Head of Cluttons Middle East, said the government requirement has certainly contributed to the rising tenant demand that we have been recording. “We expect that the ruling, which came  into force today for 20,000 public sector workers and their families, will continue to place downward pressure on vacancy levels. At the same time, this will bolster residential rental and capital value growth rates, particularly in submarkets that provide easy access to Abu Dhabi Island and the lifestyle offered by Dubai,” said Morgan.
“Al Raha Beach is a prime example of this and we have already seen rents rise by close to 15 per cent during the second quarter. This rise has been fuelled in part by tenants wishing to secure suitable accommodation ahead of the deadline and also by new job starters moving to the capital, particularly in the education, healthcare and hospitality sectors,” he said.
Morgan said the upturn in employment, coupled with the government’s relocation requirement is expected to continue to reduce the oversupply of residential stock and push up prices.  Rising levels of housing demand have already been evidenced by a 13.2 per cent rise in average capital values for apartments in the first half of 2013. Furthermore, increases of 15.9 per cent in average prices for high-end apartments on Reem Island during H1 were also recorded; this is more than double the overall 7.3 per cent growth rate across the capital over the same period.  This is in marked contrast to last year, when high-end apartment values contract by -3.3 per cent on Reem Island, whist apartment prices slipped by -4.4 per cent across Abu Dhabi.  Villas have registered capital value rises of 22 per cent during first half, underpinned by the strong performance of submarkets such as Sadiyat Island.  
Al Reef Villas emerged as the strongest performing villa submarket in the six months to June, registering strong growth of 15.1  per cent, due to its family appeal and desirable location, adjacent to Shaikh Zayed Rd, Morgan said.
According to Cluttons, the office market on the other hand remains subdued. However, whilst office supply continues to lag occupier demand, prime grade-A rents are holding steady at between Dh1,700 and Dh 1,800 per square metre, or psm, while more secondary offices, in locations perceived to be inferior, are still experiencing rent reductions, dipping to just below Dh1,000psm.
“It is office space in older parts of the capital that are likely to experience ongoing downward rental adjustment as more modern office space coming to market challenges older buildings.  With no boost to office demand levels expected in the near future, it is unlikely that a turnaround in office rental growth rates will be recorded this year,” Cluttons said in its statement.

The retail scene in the capital offers a more positive outlook, with a circa 200,000 sqm still expected to come online this year at Deerfields Mall, Emporium Mall at the Central Market and the recently opened Galleria Mall at Sowwah Square.  “With 600,000 sqm of additional retail space projected to come to market from 2014 to 2017, we expect the malls in the capital to follow a similar strategy to those in Dubai, acting as anchors for future residential and commercial development.  Malls such as Dubai Mall (Downtown Dubai) and Mall of the Emirates(Barsha) have been the catalysts for housing and office demand in their respective submarkets and Abu Dhabi’s new mega malls are likely to act as the foundation blocks for similar future growth,” it said.