Rents across Abu Dhabi’s residential investment areas decreased by 2.3% during the first quarter of 2018, according to a recent report by real estate consultancy Cluttons.

The latest fall in prices follows a 4.3% drop seen during the final quarter of 2017, leaving rents now 11.5% lower than this time last year, the Cluttons Abu Dhabi Property Market Outlook report revealed.

According to the report, though the first quarter of 2018 has recorded a slowing rate of capital value declines across the UAE, developers of high end homes in Abu Dhabi appear to be sensing a bottoming of the market.

Faisal Durrani, head of Research at Cluttons, said: “2018 looks set to be a better year for the UAE economy as a whole, with GDP expected to expand by 2.6%, from a seven year low growth rate of 1.7% last year.

READCluttons: Abu Dhabi residential market stagnant in 2017

“This is, in turn, expected to help support more stable rates of job creation and increased government spending as confidence levels improve.”

As an example of this positive outlook, high-end areas in the UAE capital have shown stability, with sea facing villas on Saadiyat Island, for instance, remaining the most expensive residential property type in Abu Dhabi at AED1,700 psf. These areas have seen no movement in prices for two consecutive quarters.

Cluttons has also noted a marginal uptick in demand from Emirati buyers predominantly, looking for second homes, or expanding their buy-to-let investment portfolios on Saadiyat Island, according to Edward Carnegy, head of Cluttons Abu Dhabi.

“This trend is likely to help tempt buyers back into the market, especially as we feel the stability is likely to persist,” he said.

The property consultancy also expects further infrastructure project announcements this year as the government moves to bolster economic growth.

This is supported by recent announcement by major companies, including ADNOC, which at the end of last year announced it would spend nearly $109bn (AED400bn) over the next five years to boost growth.

Though Abu Dhabi’s residential market has the potential to start stabilising by the end of 2018, the report however indicates that further softening is expected to persist.

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“The additional declines will be catalysed by rising levels of property handovers in locations such as Yas Island and Al Raha Beach by Aldar, which will curtail chances for a quicker recovery,” Durrani said.

“We expect a decline of a further 5% to 7% for both residential rents and values during 2018, largely as supply and demand will likely remain out of kilter for a while yet.”

He added: “Positively, bulk corporate leases are back on the agenda for some firms as they move to secure better lease terms, or indeed better quality accommodation for staff, while also making a saving.”

The falling rents, according to Cluttons, are reflective of the lingering weakness in overall requirement levels.

Tenants are wary of the threat of job losses and the rising cost of living, associated with the introduction of VAT and a general upward creep in inflation, which has left many household budgets under tremendous pressure

“As a result, tenants are negotiating reductions at renewal, while landlords are increasingly receptive to meeting the expectations of tenants by agreeing to close deals below headline asking rates, and they are offering flexible rental payments in multiple cheques to attract tenants as well as other incentives such as zero commission payable and rent free,” added Carnegy.