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Economic Evolution Underpinning Long Term Sustainability Of Residential Property Market In Abu Dhabi, Says Cluttons











Abu Dhabi's gradual economic diversification is helping to deliver long term sustainability to the emirate's residential market, according to the latest research released by international real estate consultancy Cluttons. 

Cluttons Abu Dhabi Spring 2014 Residential Market Outlook report, points to the emirate's strong economy, which is showing significant signs of change. The non-oil sector continued to expand its share of the economy, accounting for 45% of total GDP in 2013 and up from 43% in the previous year, which is helping to ensure the sustainability of growth in the residential market by aiding in the long term diversification of the buyer and tenant demand base.

Key sectors driving growth in the housing market are the tourism, hospitality, education and healthcare sectors, which is translating into robust population growth and demand in terms of the volume and nature of property requirements.

This resurgence in demand is coupled with a market that has been depleted of new supply for a number of years and this is driving values, while also stimulating a widespread return to development.

Steven Morgan, Chief Executive Cluttons Middle East, said: "Abu Dhabi's economic evolution is underpinning the long term sustainability of the residential property market. The market has already seen the quarterly pace of residential value growth stabilize at close to 7% over the past two quarters. Despite the moderation in the rate of acceleration, values across the City's relatively small freehold residential landscape currently stand 47% up on this time last year, highlighting the depth of buyer demand.  This is also enhancing Abu Dhabi's attractiveness to international investors, some of whom are keen to capitalize on rapid rebounding in values."

Highly sought freehold apartments experienced the strongest performance in Q1 (6%), with Al Reef Downtown (9%) showing the greatest level of growth. In the villa market, Al Reef Villas (6%) was the strongest performing primarily because of its relative affordability when compared to other submarkets in the city.

The economic diversification is also positively influencing the lettings market, with corporate transactions taking entire towers for staff housing common place. The rapid removal of stock from the supply line will continue to sustain the upward pressure on rents.

"We expect this trend to persist during 2014, but the ongoing growth in rents across the city will drive larger corporations to contemplate longer term solutions for staff accommodation", adds Morgan. "We expect to see a sharp increase in long-term lets, which will reduce stock levels in desirable locations. As a result, we anticipate a growth in partnerships between corporations, developers and land owners, with build-to-suit options coming to the fore."

The lettings market is however still expected to remain buoyant. The vibrancy will in part be aided by the recent removal of the Rent Cap in November 2013. Morgan commented, "Landlords were able to adjust rents to perceived market levels rapidly and clearly longer term tenants would have felt this the most. In fact some tenants have reported increases of up to 50% at renewal. The announcement has helped to drive churn in the market as value seekers are being driven to more affordable submarkets such as Al Reef."

"As these sub-markets come to life with improved infrastructure and amenities, more people will continue to be drawn to them. The market is undoubtedly meandering through a settling period following the removal of the Rent Cap, but the thickening supply pipeline may offer some respite to tenants, particularly if we see corporates begin to exit the private rental market in favour of build to suit options."

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