Landlords are being forced to introduce special deals and lower rates in order to attract tenants as new projects come on stream in the capital, a report has said.
And the study, by property advisory group Tasweek Estate Marketing and Development, found that the trend is likely to continue as prices in the capital continue to fall.
"These include the waiver of the annual 5 per cent rental increase; acceptance of monthly and quarterly instalments; free unit finishing and renovation; waiver of electricity and water payments; and one or two months' grace periods," the report says.
Tasweek said that Abu Dhabi experienced a steady increase in unit introductions in 2011, which led to significant declines in rental rates especially in areas outside of the city such as Mohammad Bin Zayed City, which offered a bigger supply of new buildings.
As with the other locations in Abu Dhabi, rents on Abu Dhabi Island have been sliding over the past two years, according to the report.
"Because of the dearth of new housing units, many tenants relied heavily on the opening of Al Reem Island and its anticipated market effects. Residential yield averaged 10.5 per cent across all residential categories in 2011, with price drops outpacing a rental slide. Commercial yield, on the other hand, averaged 12.5 per cent," the report said.
It indicated that the phenomenon of rising supply on the island is expected to spill over to the first quarter of 2012 with the introduction of more than 5,000 residential and office units in Al Reem and the completion of various projects in the port areas.
Craig Plumb, director of research for Jones Lang LaSalle, told Gulf News that real estate market for residential units will witness further price drops since the rents and sales prices of this sector had not yet bottomed out.
"2012 will be worse for Abu Dhabi's property market. The prices are expected to fall further in order to meet the oversupply of units, particularly with the completion of the new housing units," added Plumb.
As for office prices, they will have to drop further in Abu Dhabi in order to attract tenants, said Plumb.
Meanwhile, analysts said that Dubai's market was likely to bounce back in 2012.
"Rental and sales prices for residential units have fallen to the bottom in Dubai. This year will witness stability in the prices and a recovery to the market," Plumb said.
The report showed that rents have particularly stabilised at the Dubai Marina, the Greens, Al Barsha and downtown Dubai with declines of between 5 per cent and 15 per cent in areas such as Discovery Gardens, Jumeirah Lake Towers and Silicon Oasis.