Though it is Dubai that has been in the forefront of the news, the effects of the economic slowdown, involving construction and real estate has been felt all across the Middle East. 2009 was a particularly bad year for Dubai, but other emirates like Abu Dhabi are also reeling from the impact of the global financial crisis. Thankfully, the economic managers in Abu Dhabi have been more astute in adopting various fiscal measures and stimulus packages to combat the negative effects of the economic downturn.

Although the effects of the economic crisis were still being felt in the last quarter of 2009, the residential market in Abu Dhabi is showing signs of stabilizing.  Rental rates had declined all through the year, albeit at a slower rate each quarter. It was thought that affordable rentals and better quality alternatives in Dubai apartments influenced weaker residential demand levels in Abu Dhabi properties.  

Elsewhere, substantial portions of planned residential projects were temporarily put on hold with delays at Ream Island and Al Raha Beach. However, the expected completions at the Khalifa A and Al Reef projects will help in easing rents, reducing pressure for both residents and occupiers looking to expand their workforce within Abu Dhabi.

Annual rents for apartments posted the strongest performance with a one bedroom apartment down 4 percent compared to 3rd Qtr 2009. In the prevailing situation, landlords and agents are now more open to negotiations with tenants.

The sales market also started to show indications of a slight upturn in fortunes, with increases in both inquiries and the number of sales transactions. However transactional volumes are anticipated to rise gradually, with no return to the levels reached during the first six months of 2008.

The easing of rents and increasing power of tenants in negotiations are expected to continue in the short term. In the office market, prime rents continue to slide and are down 45 percent from peak prices seen in 2008.  A number of key commercial developments are still quoting rates of AED 3,000 per square meter per annum regarding property for sale in Abu Dhabi.

Despite the comparatively low rents, getting tenants still poses a challenge for both owners and agents. Increased availability of rental spaces provides end users with greater accommodation options and improved bargaining power with landlords.  

Commercial demand remains focused towards smaller office units. While vacancy rates for office accommodation during the third quarter of 2009 remained low at around 2 percent, the impact of new upcoming units and weaker demand for office accommodation could see this rate go up during the course of 2010.

Meanwhile, amendments to commercial law reducing the levels of capital required have encouraged an increase in start up businesses, which has in turn expanded the numbers of potential commercial tenants. If the government continues to make the emirate’s property laws more consumer friendly, it is expected that this will further increase the demand for commercial space in Abu Dhabi both in the short and long term.