OBSERVER Residential Report Q2 2020

OBSERVER - Abu Dhabi Residential Report Q2 2020 1 Market Overview Report Highlights

Economic Snapshot distancing measures limited sales activity over Q2 and average prices will likely see further declines as transaction Social distancing measures, coupled with Covid- Abu Dhabi’s economy was impacted by measures volume increases over H2 2020. introduced to counter Covid-19 over Q2, with the 19’s economic impact, affected Abu Dhabi market emirate’s Department of Economic Development Rental Rates performance over Q2, with the capital’s residential sector forecasting the economy to contract by 3 to 4% over seeing an overall reduction in agency activity. 2020. Tourism-related sectors and physical retailers were Rents saw a sharper rate of decline over Q2, with average acutely affected by the suspension of tourist arrivals rates down by 2.2% for apartments and 2% for villas, on Average values declined moderately over the second coupled with the temporary closure of hotels and malls a quarterly basis. This compares to declines of 1% and quarter, with apartment and villa prices falling by 1.4% over the second quarter. 0.6%, respectively, over Q1 2020. On an annual basis, and 1.3%, respectively, broadly in line with the pace of apartment rents fell by 4.7% on average, with villa rents declines witnessed over Q1. The proactive policy response from both Abu Dhabi and falling by 4.6%. Covid-19’s economic impact will continue UAE authorities, however, eased the severity of the to challenge rents over 2020, with falls in private sector pandemic’s overall impact. Abu Dhabi authorities have income, rising unemployment and a reduced expatriate The economic impact of Covid-19 was more evident announced further initiatives to support an economic population set to place downward pressure on rates. across Abu Dhabi’s rental sector, with average apartment recovery over 2021, with plans focused on investment in rents falling by 2.2% quarter-on-quarter (q-o-q) and 4.7% startups and strategic industries, especially agricultural Supply year-on-year (y-o-y), with villas seeing more moderate science, in addition to attracting technology firms and declines of 2% q-o-q and 4.6% y-o-y. This compares to skilled workers. Around 1,700 apartment units were completed during quarterly declines of just 1% for apartments and 0.6% Q2, largely located across , and for villas over Q1 2020. Sales Prices Al Raha. Over 5,200 apartments are scheduled for completion during H2 2020, with , Al Although social distancing policies broadly restricted Abu Dhabi saw moderate declines in residential values Reem Island and Al Raha set to see the majority of new over Q2, with average apartment and villa prices falling supply. As witnessed in previous years, and with social rental activity over April and May, agents reported a by 1.4% and 1.3%, respectively. On an annual basis, distancing measures affecting labour capacity across clear rise in enquires over June, largely driven by tenants average apartment prices fell by 5.3%, with villas seeing construction sites, we expect a minority of planned either looking to reduce rental costs or take advantage more moderate average declines of 4.8%. Social completions to delay handover until 2021. of lower rents to upsize.

The proactive policy response from both UAE and Abu Dhabi authorities served to ease Covid-19’s overall Key Indicators economic impact over Q2. The residential sector further benefited from March decisions by both Abu Dhabi authorities to waive municipality fees and the UAE Central Bank to increase the loan-to-value ratio for first- time buyers. Apartments Villas Prices: Prices: The outlook for Abu Dhabi’s residential sector will be closely tied to the performance of the wider economy. Q-o-Q Change: –1.4% Q-o-Q Change: –1.3% Over the second half of 2020, we expect residential Y-o-Y Change: –5.3% Y-o-Y Change: –4.8% prices and rents to decline further, driven by a fall in the expatriate population and an overall economic Rents: Rents: contraction. With current forecasts projecting a return Q-o-Q Change: –2.2% Q-o-Q Change: –2.0% to economic growth next year, we expect to see greater Y-o-Y Change: –4.7% Y-o-Y Change: –4.6% stability across both prices and rents over 2021.

OBSERVER - Abu Dhabi Residential Report Q2 2020 2 OBSERVER - Abu Dhabi Residential Report Q2 2020 3 Agency activity fell over Q2, with sales prices seeing moderate declines

Abu Dhabi saw moderate declines in residential values over Q2, Al Ghadeer saw the highest declines on a quarterly basis, with with average apartment and villa prices falling by 1.4% and average apartment prices falling by 2.1%, from AED 715 to AED 1.3%, respectively. On an annual basis, average apartment 700 per sq ft. Al Reef saw the second-highest fall in average prices fell by 5.3%, with villas seeing average declines of 4.8%. prices, reaching AED 750 from AED 765 per sq ft over Q1 2020, representing a 2% decline q-o-q. Measures introduced to combat Covid-19 limited agency activity over the second quarter, especially across April and May. saw the lowest average quarterly declines, with The easing of social distancing measures in late May, however, prices falling by 0.7% to AED 1,370 from AED 1,380 over the led to increased market activity, with agents reporting a clear previous quarter. rise in enquires over June. Al Reef prices saw the most significant declines on an annual While we expect Abu Dhabi to see falls in sales prices over basis, at -7.8%, followed by Al Ghadeer at -6.7%, with average the second half of 2020, generous developer incentives, such prices reaching AED 750 and AED 700, respectively, over Q2 as extended post-handover payment plans, initial service 2020. charge waivers and discounted prices should serve to support transaction volumes moving forward. On an annual basis, Saadiyat Island was the strongest performing location, with average prices falling by just 2.1%, Around 1,700 apartment units were completed during Q2, with from AED 1,400 in Q2 2019. Saadiyat Island saw stable a further 5,200 apartment units scheduled for completion over average prices over the second half of 2019, contributing to the the second half of 2020. The majority of planned completions moderate rate of annual decline. are located across Al Maryah Island, Al Reem Island and Al Raha Beach. Villa Sales Prices: Q-o-Q Change: –1.3% Y-o-Y Change: –4.8% Scheduled Apartment Completions by Area (H2 2020) Average villa prices saw moderate declines on a quarterly basis, with all but one studied location seeing prices fall by below 2%. Al Marina Al Raha Gardens recorded the highest declines q-o-q, with Al Hudayriat Island average prices falling by 2.2% to AED 675 per sq ft over Q2. Al Raha Beach This follows a 1.4 % decline in average prices over the previous quarter. Al Reem Island The strongest performing locations were and Al HOT TOPIC Public policy and developer incentives to support transactions Al Maryah Island Raha Beach Area, which witnessed declines of 0.6% and 0.5%

0 200 400 600 800 1000 1200 1400 1600 1800 q-o-q, respectively. Average prices at Khalifa City stood at AED

No of Units 840 per sq ft, with prices at Al Raha Beach Area declining to While the economic impact of Covid-19 will likely challenge sales activity over 2020, the proactive policy response from both AED 1,065 per sq ft. UAE and Abu Dhabi authorities, along with the broad range of buyer incentives offered by developers, should serve to support Source: REIDIN and Chestertons transaction volumes moving forward. While Al Raha Beach Area performed well over Q2, higher than Apartment Sales Prices: average falls over late 2019 led to an annual decline in average The 5% increase in the loan-to-value ratio applicable for first-time buyers, introduced by the UAE’s central bank, coupled with the Q-o-Q Change: –1.4% prices of 8.2%, down from AED 1,160 per sq ft in Q2 2019. cancellation of Abu Dhabi Municipality fees, equivalent to 2% of a property’s purchase price, have provided welcome support since Y-o-Y Change: –5.3% March 2020. Al Ghadeer and Al Raha Gardens saw the most moderate Average apartment prices declined by 1.4% across the capital yearly price falls, with both seeing average declines of 3.6%. Developers have also responded to a more challenging operating environment by introducing a range of incentives. Recent q-o-q, with all areas seeing falls within a bracket of -0.7% to Average prices across both locations stood at AED 675 per promotions include the waiving of service charges for up to three years post-handover and offering cash rebates on off-plan -2.1%. sq ft over Q2 2020, down from AED 700 in Q2 2019. purchases, building on the extended post-handover payment plans introduced last year. further announced partnerships with several Abu Dhabi-based banks over the second quarter, providing buyers with access to discounted mortgage rates and reduced administrative fees.

OBSERVER - Abu Dhabi Residential Report Q2 2020 4 OBSERVER - Abu Dhabi Residential Report Q2 2020 5 Apartments and Villas − Residential Sales Prices and Quarterly Change

AED1,370 Halat Al -1.1% SAADIYAT Bahrani Q-o-Q AED1,380 ISLAND Change SAADIYAT ISLAND Al Rafiq -0.7% AED940 AED950 Saadiyat Q-o-Q Ras Ghurab Al Weheil Island Island Island AL REEM AL REEM Al Reem Change Qassabi ISLAND ISLAND Island Al Aryam Al Jubail Island Ba Al Umm Yifenah Ghaylam Island -1.2% Island Q-o-Q Al Futaisi Change AED1,215 AL RAHA BEACH

Zayed Sports AED1,230 City -1.5% AL RAHA Q-o-Q BEACH AED675 Change AED1,065 AL GHADEER Al Raha -2.2% Beach AL RAHA Q-o-Q Samaliyah BEACH AED685 Island Change AED690 Yas Island AL GHADEER AED1,070 AL RAHA -0.5% AED675 GARDENS AL RAHA BEACH Q-o-Q AL RAHA Al Raha Change GARDENS Gardens Al Reef -2.1% Khalifa City Q-o-Q Al Ghadeer ICAD II Change Abu Dhabi AED765 International AED700 AL REEF AED750 AED715 Airport AL GHADEER AED845 AL REEF AL GHADEER KHALIFA CITY -2.0% AED605 Q-o-Q AED840 AL REEF Change KHALIFA -0.6% CITY Q-o-Q Change -1.7% Q-o-Q Change AED595 AL REEF

Figures in AED/Sq Ft Villa Sales Q1 2020 Villa Sales Q2 2020 Apartment Sales Q1 2020 Apartment Sales Q2 2020 QoQ Movement Source: Chestertons Research

OBSERVER - Abu Dhabi Residential Report Q2 2020 6 OBSERVER - Abu Dhabi Residential Report Q2 2020 7 Rents saw a sharper rate of decline over Q2, with Covid-19’s economic impact set to place further downward pressure

Rents saw a higher rate of decline over Q2, with average rates The most significant ongoing threats to the rental sector Al Reem Island saw the second-highest quarterly declines, Al Raha Gardens saw the most moderate decline in quarterly down by 2.2% for apartments and 2% for villas, on a quarterly come from a fall in demand driven by rising unemployment with average rents falling by 4%, driven by a decline in rents rents, with average rates falling by just 0.5% over Q2, following basis. This compares to declines of 1% for apartments and 0.6% and declining income levels for private sector workers. The for smaller units. Rents for studios declined by 4% and one a rise of 2.3% the previous quarter. for villas over Q1 2020. second quarter witnessed a rise in unemployment, especially bedroom units by 7.7%, reaching AED 46,000 and AED 60,000 across travel-related sectors, and a further fall in Abu Dhabi’s per annum, respectively. Al Reef was the only other location to see average rents fall by Annually, Abu Dhabi apartment rents declined by 4.7% on expatriate population presents a clear risk moving forward. below 1%, declining by just 0.8% q-o-q. Average rents for three average, while villa rents were down by 4.6%. Corniche Road and Mohammed bin saw the greatest bedroom units fell by 2.4%, to AED 100,000 per annum from Landlords will likely need to demonstrate continued flexibility stability over Q2, with rents declining by just 0.4% and 0.6%, AED 102,500 the previous quarter, with rents across four and Tenants continued to seek discounted rents, and more on both rents and payment terms, focusing on taking steps to respectively, on a quarterly basis. Al Khalidya and Al Raha Beach five bedroom villas holding steady at AED 130,000 and AED favourable payment terms, over the second quarter, with rent- retain tenants, over the second half of 2020. Area also witnessed below average falls q-o-q, falling by 1% and 140,000 per annum, respectively. free periods and payment through six to twelve rental cheques 1.4%, respectively, with both areas having seen declines of less becoming increasingly common. Apartment Rental Rates: than 1% the previous quarter. Muroor Area was the only other The largest decline in average rents was seen in Al Ghadeer, Q-o-Q Change: –2.2% location to see declines of below 2%, with average rents falling with rates falling by 4.4% over Q2, following a 2.4% decline over While social distancing measures largely restricted leasing Y-o-Y Change: –4.7% by 1.9% q-o-q. Q1 2020. activity over April and May, the market saw a broad rise in activity over June. Tenants typically sort to reduce rental costs, The highest average rental declines for apartments over Q2 Villa Rental Rates: Al Ghadeer was also the only location to see a double-digit following a fall in income, or take advantage of lower rents to were seen in Al Ghadeer, where average rents decreased by Q-o-Q Change: –2.0% decline in average rents on an annual basis, with rates falling by upsize and upgrade their accommodation. 4.2% from Q1 2020. Y-o-Y Change: –4.6% 10.3% from Q2 2019. Average rents for three and four bedroom villas stood at AED 95,000 and AED 120,000 per annum, Average villa rents saw an increased rate of decline over the compared to AED 110,000 and AED 130,000 over Q2 2019, second quarter, within a bracket of -0.5% to -4.4%, following an respectively. Apartments − Average Rents by Location/Unit Type and Quarterly Change overall decline of 0.6% in Q1 2020.

180,000 0.0%

160,000 -0.5% PE R

140,000 -1.0% CEN T

120,000 -1.5% A GE CHANGE 100,000 -2.0% 80,000 -2.5% 60,000 -3.0% RENTS (AED PER ANNUM) 40,000 -3.5% 20,000 -4.0% 0 -4.5% Al Raha Beach Area Al Ghadeer Al Reef Al Reem Island Saadiyat Island Khalifa City Al Khalidiya MBZ Corniche Road Muroor Area

Source: Chestertons Research Studio 1BR 2BR 3BR QoQ Change

OBSERVER - Abu Dhabi Residential Report Q2 2020 8 OBSERVER - Abu Dhabi Residential Report Q2 2020 9

300,000 0.0% PE R -0.5% CEN T 250,000 -1.0%

-1.5% A

200,000 GE CHANGE -2.0% 150,000 -2.5% -3.0% 100,000 -3.5%

RENTS (AED PER ANNUM) -4.0% 50,000 -4.5% 0 -5.0% Al Ghadeer Al Reef Al Raha Khalifa City Al Reem Al Khalidiya MBZ Gardens Island

Source: Chestertons Research 3BR 4BR 5BR QoQ Change 180,000 0.0%

160,000 -0.5% PE R

140,000 -1.0% CEN T

120,000 -1.5% A GE CHANGE 100,000 -2.0% 80,000 -2.5% 60,000 -3.0% RENTS (AED PER ANNUM) 40,000 -3.5% 20,000 -4.0% 0 -4.5% Al Raha Beach Area Al Ghadeer Al Reef Al Reem Island Saadiyat Island Khalifa City Al Khalidiya MBZ Corniche Road Muroor Area Villas − Average Rents by Location/Unit Type and Quarterly Change

Source: Chestertons Research Studio 1BR 2BR 3BR QoQ Change

300,000 0.0% PE R -0.5% CEN T 250,000 -1.0%

-1.5% A

200,000 GE CHANGE -2.0% 150,000 -2.5% -3.0% 100,000 -3.5%

RENTS (AED PER ANNUM) -4.0% 50,000 -4.5% 0 -5.0% Al Ghadeer Al Reef Al Raha Khalifa City Al Reem Al Khalidiya MBZ Gardens Island

Source: Chestertons Research 3BR 4BR 5BR QoQ Change

HOT TOPIC What does the future hold for Abu Dhabi real estate?

The economic impact of Covid-19 disrupted Abu Dhabi’s residential sector at a point when the market was starting to see greater stability, with figures over Q4 2019 pointing towards a gradual levelling off of both prices and rents.

The performance of the UAE’s residential sector is closely tied to that of the wider economy, with UAE non-oil sector growth showing a broad correlation with sales price movements over recent years. With Abu Dhabi expected to see an economic contraction over 2020, and with over 5,000 apartment units still scheduled for completion this year, we expect both rents and sales prices to see further declines over the second half of 2020.

S&P Global Ratings currently forecasts Abu Dhabi’s economy to rebound next year, projecting economic growth averaging 2.2% between 2021 and 2023. In this context, Abu Dhabi will likely see more stability across residential prices and rents over 2021.

OBSERVER - Abu Dhabi Residential Report Q2 2020 10 OBSERVER - Abu Dhabi Residential Report Q2 2020 11 About Us Core Services

Valuations Mortgage and Secured Lending Portfolio Valuations

Strategic Consultancy & Research Financial Feasibilities Highest and Best Use Studies Chestertons, a founding member of the Royal Institution of Chartered Surveyors, has been Market Research delivering leading-edge property advice to clients for over 200 years. Conceptual Advisory and Project Positioning Studies Project Redevelopment/Repositioning Advisory From our origins in 1805 to today’s global operation Investment Strategies – Acquisition and Disposal spanning over 120 offices in 20 countries, Chestertons Nick Witty, BSc (Hons) MRICS has enjoyed a longheld reputation for providing Managing Director expert property insight and on-the-ground delivery MENA Sales and Leasing [email protected] Commercial to investors, developers, corporate occupiers and Industrial financial institutions. Residential Retail We support our clients across the breadth of their real estate needs and pride ourselves on taking an Adam Wilson, BSc (Hons) MRICS ACIArb Head of Valuations interest in their goals and challenges. Our ‘old service MENA values’ means we are passionate about the success [email protected] of our clients and our focus is always on consistently Property Management delivering value at every stage in the project lifecycle. Commercial Mixed-Use While Chestertons is a global company, we understand Residential Chris Hobden, BA (Hons) MSc MRICS our clients’ interests are tied to the local market in which Head of Strategic Consultancy they operate. As such, we employ the most suitably MENA [email protected] qualified people on the ground, while sharing global best practices to support each and every client project. We have unparalleled knowledge of the Middle East International Properties and North Africa market with a team of 70 specialists London Off-Plan Residential across the region. Ellen Sleutjes International Homes and Investments Head of Agency International Relocations MENA [email protected]

OBSERVER - Abu Dhabi Residential Report Q2 2020 12 OBSERVER - Abu Dhabi Residential Report Q2 2020 13 Contact Us

Mena Head Office Bahrain Office 2503, Marina Plaza, Dubai Marina Maz Business Centre, PO Box 283361, Dubai The Lagoon, Amwaj Island, Office: +9714 381 0200 Bahrain Fax: +9714 325 3359 Office: +973 1603 0646 Email: [email protected] Email: [email protected]

Abu Dhabi Office Global Headquarters Office No. 802, Tamouh Tower, 40 Connaught Street, Building 12, Marina Square, London, W2 2AB Al Reem Island, PO Box 128983, United Kingdom Abu Dhabi, United Arab Emirates Office: +9712 447 3100 Fax: +9712 441 6200 Further offices across the UK, Europe, Email: [email protected] Asia Pacific, Africa and the Caribbean.

Disclaimer:

All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valuations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, material presented is subject to errors, omissions, changes, or withdrawal without notice.

www.chestertons-mena.com OBSERVER - Abu Dhabi Residential Report Q2 2020 14