Home Rents Sliding in Abu Dhabi

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Home rents continue to drop in Abu Dhabi, once one of the most expensive places to live in the world.

Overall rents were down three percent in the first quarter from the end of 2012, according to CB Richard Ellis. Although new projects experienced demand, rents in many of the U.A.E. capital's prime neighborhoods slid to levels never seen before in modern Abu Dhabi, the latest round of consultancy reports agree.

Average monthly rents in the Marina Square project on Reem Island were down 14 percent from a year ago and 11 percent lower on the Corniche, the city's coastal strip, according to the latest report from Asteco, which tracks the rental market. The average rent for a two bedroom apartment on the Corniche is now a maximum of Dh145,000 ($39,400) a year ($3,280 a month), Asteco reports.

In 2008 Abu Dhabi ranked with London and Manhattan as one of the most expensive rental markets in the world. But the slowing economy, a wave of new projects and a steep drop in prices in Dubai have all served to slice demands from landlords.

Asking rents for a two bedroom apartment fell almost 50 percent between 2008 and 2012, according to Jones Lang LaSalle data. In addition to rent deals, landlords who once demanded a full-year's rent in advance are now more willing to take two or four checks for the year.

Renters are migrating to new developments offering an array of modern amenities. Rents rose 10 percent in the last year in Al Raha Beach, the government-controlled project off island, according to Asteco.

The result is a two-tiered market, analysts say.

"The wider market continues to experience declining rents, resulting in further divergence of residential market performance," Jones Lang LaSalle reports. "While prime buildings have shown signs of stabilization and selective recovery, secondary stock continues to experience downward pressure on rents."

The rental market is receiving a boost from rising rates in Dubai, cutting down the number of people who live in Dubai and commute to work in Abu Dhabi. In addition, last year the Abu Dhabi government mandated that public employees must live in Abu Dhabi or face losing their housing allowance, which should also serve to bolster the rental market.

The leasing market in Abu Dhabi "remains strong with good levels of demand, particularly within the high-end segment, driven by tenants seeking quality," Asteco reports.

But the supply of apartments continues to grow, despite government efforts to slow the flow of developments to the market. About 2,000 new units were delivered during the first quarter, with another 14,000 due later this year, Jones Lang LaSalle reports.

As a result, "we expect a continued divergence in the market in 2013," Jones Lang LaSalle reports.

CBRE agrees. "The residential stock in Abu Dhabi is set for a period of sustained growth, with inevitable consequences for both occupancy and rental rates," the consultancy concluded.