Strong growth backed by huge pent-up demand, a growing population and liberalization of the real estate sector is expected to keep prices strong in Abu Dhabi for the next 5-7 years - according to a report by EFG-Hermes, a regional investment bank

The report  stated that the real estate market in Abu Dhabi is backed by a shortage in all real estate markets, controlled delivery of supply to avoid a glut, greater economic liberalization and the creation of a unique identity meaning that the strength and longevity of the real estate is assured for the short term future at least.

Sana Kapadia,who wrote the report said, “A structural shortage of good quality space across the various types of real estate combined with both pent-up demand and strong immigration growth prospects underpin the supply and demand dynamics of the emirate’s real estate market.

“Strong government presence and backing and caps on the amount of real estate that can be built upon in any given year help to mitigate the risk of an oversupply of property.”

No major new additions of residential units are planned before late 2009 and with fast growing demand, the residential market is expected to remain under supplied until late 2009 at least.

“We estimate that average residential real estate prices will increase by a further 20-25 per cent over the remainder of 2008, for a total of more than 100 per cent for the whole of 2008, and by 15-20 per cent in 2009,” said Mr. Kapadia.

Demand for office space is expected to remain strong, with current vacancy rates hovering at around 1 per cent, the quality of existing space being poor and demand increasing from older businesses looking to upgrade facilities and from newer businesses seeking a presence in the Middle East. Significant supply additions starting 2009 are expected to help cool rising rents and prices.

Retail space

With malls being a recent phenomenon in Abu Dhabi and a fast growing young population and rising income levels, demand for mall-type retail space is rising. Most new projects are multi-use with high quality retail space featuring prominently.

Retail space is expected to increase from a current gross leasable area of 5.7 million square feet to around 15 million square feet by the end of 2010. Which actually sounds like a substantial increase. Almost triple, in fact and likely to do more than “cool,” rising rents.

Given the current supply and demand dynamics, where supply is not expected to catch up with demand both pent up and new over the next 18 to 24 months at least, prices and rents are expected to continue to rise in all the real estate segments over the short to medium term then drop sharply as the new supply comes on line.