Abu Dhabi real estate: Villa prices are driven by home improvements, but flat rents continue to shrink

According to Knight Frank, average prices are still 25% lower than the 2014 peak, and values have stayed largely stable for three and a half years.

According to global real estate firm Knight Frank, residential values in Abu Dhabi's freehold regions increased by 1.6% in Q2, but rents in general continue to fall.

The overall value of transactions in Abu Dhabi during the second quarter grew to AED 6.1 billion, a 103% increase over the same period previous year.

Average costs have risen to 979 UAE dirhams per square foot (psf), a 2.8% increase over 2022.

Al Reem Island has emerged as the most active sales submarket in the UAE, followed by Saadiyat Island.

According to Knight Frank, average prices are still 25% lower than the 2014 peak, and values have stayed virtually stable for three-and-a-half years, creating confidence in buyers to convert from renting to buying or upgrading when possible.

"Home upgrades are driving price growth in certain segments of the market, with more affordable villa locations, such as Al Reef Villas, for example, registering the strongest price growth in the villa market (17%) since early 2020 as buyers take advantage of the opportunity to upgrade from apartments to villas," said Faisal Durrani, Partner, Head of Research, Middle East and North Africa.

Prices at Al Reef Villas (AED 686 psf) and Al Raha Gardens (AED 826 psf) have risen by 16.9% and 4.9%, respectively, since January 2020, compared to a 0.8% decline at Saadiyat Island (AED 1,337 psf).

"Prices on Saadiyat Island, Abu Dhabi's most expensive freehold villa submarket, appear to be stabilising again after a near 12-month decline." While Saadiyat Island continues to provide good relative value for money at roughly AED 1,300 per square foot, particularly when compared to other Dubai areas, there is a distinct price sensitivity threshold here, beyond which purchasers appear hesitant to commit."

The rental market

Flat rents have increased by 0.3% since the first quarter but are -0.4% lower than last summer. Villa lease prices, on the other hand, have experienced an increase in demand, with the exception of more cheap submarkets such as Al Reef Villas and Al Raha Gardens, according to the survey.

According to Knight Frank, the city's average yearly residential leasing prices are AED 60 psf, a 0.4% increase from this time last year.

"While rents in general continue to fall, villas are a star performing subsector in the leasing market, with a notable upswing in lease rates across Abu Dhabi, with the exception of more affordable submarkets, such as Al Reef Villas and Al Raha Gardens, where annual rents stand at AED 42 psf and AED 51," said Stephen Flanagan, Partner, Head of Valuation Advisory, Middle East & North Africa.

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