Abu Dhabi's real estate market recorded its strongest capital gains in three years during the first quarter of 2025, driven by strong demand and limited supply, according to a research report by ValuStrat.
Despite slowing sales volumes, rising prices and rents across the residential, commercial, and hospitality sectors indicate sustained investor confidence in the emirate's real estate market.
The ValuStrat Residential Price Index (VPI) rose 2.1% quarter-on-quarter and 7.2% year-on-year to 125.6 (Q1 2021 baseline: 100). Villas led the gains, rising 2.7% quarter-on-quarter and 9.7% year-on-year to 134.7, while apartments saw a more modest increase of 1.5% quarter-on-quarter and 4.5% year-on-year to 116.9.
Haider Taaima, Managing Director and Head of Real Estate Research at ValuStrat, said the gains were due to limited supply, with only 2.0% of the projected 2025 residential pipeline delivered in the first quarter.
Rental values witnessed significant increases, with the residential rental index rising by 2.2% quarter-on-quarter and 9% year-on-year to reach 121. Apartment rents outperformed villas, growing by 3.4% quarter-on-quarter and 11.6% year-on-year to reach 117.6. Villa rents, meanwhile, rose by 6.3% year-on-year but remained flat quarter-on-quarter at 124.8. The average gross yield was 7.8%, with apartments accounting for 8.3% and villas for 6.7%, reflecting strong rental demand amid an occupancy rate of approximately 88.1%.
Saadiyat Island emerged as a leading investment destination, recording the highest annual growth in villa prices at 21.2%, followed by Al Raha (8.2%) and Mohammed Bin Zayed City (4.7%). For apartments, Al Reef topped the list with an annual growth of 7.5%, followed by Saadiyat Island (6.2%) and Al Muneera (5.7%).
The average price per square meter for houses in Abu Dhabi was AED 10,226, apartments AED 10,979, and villas AED 8,407.
Average apartment rental prices in Abu Dhabi reached AED 114,000 per year, with Al Reef (3.4%), Al Bandar (2.8%), and Al Munira (2.5%) recording the highest quarterly growth. Average villa rents across the city reached AED 245,000 per year, with Al Reef (1.5%) and Al Raha (1.1%) leading the quarterly growth rates.
Typical annual rents included AED 63,000 for studios, AED 89,000 for one-bedroom apartments, and AED 180,000 for three-bedroom villas.
Despite the price increases, sales activity was mixed. Off-plan home sales declined due to a lower number of projects released, despite higher transaction values. Sales of ready homes declined quarterly but grew year-on-year, with mortgage-backed purchases dominating, indicating stable domestic demand. "Major developers are moving forward with their projects on Saadiyat Island, Zayed City, Ghantoot, and Masdar City, reflecting long-term confidence," Taaima noted.
The commercial and hospitality sectors also performed strongly. Office prices and rents rose amid high occupancy in central business districts, while the retail sector maintained its strength thanks to heavy traffic. The hospitality sector saw exceptional growth in occupancy and revenue, driven by a tourism boom.
According to a Knight Frank report, hotel occupancy rates in Abu Dhabi reached 78% in the first quarter of 2025, a 5% year-on-year increase, driven by events such as the Abu Dhabi Grand Prix and cultural festivals. Analysts attribute the market's strength to Abu Dhabi's economic diversification and government initiatives. A CBRE report highlighted that infrastructure investments and visa reforms have boosted demand from expatriates and investors. However, limited supply remains a challenge. A CBRE spokesperson stated: "The limited pipeline is pushing up prices, but continued development activity could rebalance the market in the long term."
According to real estate market analysts, as Abu Dhabi's real estate market continues its upward trajectory, stakeholders are optimistic about its resilience. With increasing demand driven by tourism and economic growth, the emirate is cementing its position as a prime investment destination, but addressing supply constraints will be essential to maintaining this momentum.
For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values - April 2025
