ABU DHABI // Apartment rents in the capital fell by an average of 14 per cent last year, and harder-to-let homes dropped by as much as 35 per cent.
At the same time, rents for Grade A office space - the highest quality available - dropped by an average of 28 per cent, according to a new report from the property consultancy Jones Lang Lasalle.
The falls are the clearest sign yet of an oversupply of homes and offices as the economy struggles to produce enough jobs to keep up with new buildings being completed.
They are good news for businesses planning to move to new offices, and residents negotiating new leases or thinking of moving home.
"While developers have scaled back many projects since the market correction at the end of 2008, the additional supply entering the market is generating an oversupply situation for most asset prices," the report says.
"Consequently, average rentals and sale prices continued to decline in most sectors."
Rents could fall further in 2011 with tens of thousands of new homes and offices planned for delivery. Total office supply should rise by 25 per cent this year, bringing the total space available to roughly 2.75 million square metres, according to Jones Lang Lasalle.
This could push the vacancy rate well above 10 per cent, from its current rate of 8.4 per cent.
About 25,000 new homes have been announced for completion this year, but “actual completions in 2011 are likely to be lower than scheduled due to further delays”. Nevertheless, thousands of homes on Reem Island and Raha Beach should be finished, which will reduce prices at the higher end of the market.
There was still a serious shortage of affordable homes for lower and middle-income residents, Jones Lang Lasalle said.
Property markets are often characterised by a supply and demand imbalance because of the long time it takes to launch, finance and build a new tower or development, said Paul Maisfield, general manager of the Abu Dhabi office of the property management company Asteco.
"Developers went full steam ahead with massively ambitious projects and very significantly sized projects,” he said. “And since the beginning of 2009, demand has really tailed off. We haven’t got the same volume of new people coming into Abu Dhabi as we had in 2007 and 2008."
Government policies to grow the economy would lead to more people coming to Abu Dhabi, but that too would take time, he said. "It’s very certain that there’s a lot of supply coming to the market."
Mr Maisfield said: "The uncertainty is whether the demand is really there."
The depression of the property markets began in early 2009 after the global financial crisis started to have an impact in the region.
That many developers of new buildings were financing construction with down payments from buyers has worsened the situation. As prices began to tumble, some buyers stopped making payments and dozens of developers have halted projects because of lack of cash.