Jones Lang LaSalle, the world's leading real estate investment and advisory firm, today released its latest ‘Abu Dhabi Real Estate Market Overview – Q3 2011’ covering the office, residential, retail and hospitality sectors.
The Q3 report shows that despite handover delays with some projects, higher completion levels are now filtering through and are providing more options for tenants in both the office and residential sectors of the market.
The Abu Dhabi government’s restructuring plans, together with increasing concerns about a possible global economic slowdown, have constrained demand over Q3, but have also made the market more competitive in terms of rental pricing and availability of quality product. With increased vacancies and downward rental pressure, tenants across different sectors are now able to upgrade to new and better quality properties without incurring additional costs.
The various structural reforms being undertaken in major Abu Dhabi government entities will ease the market going forward, but most sectors are expected to move further in the tenants favour over the next 6 months.
David Dudley, Head of Abu Dhabi office, Jones Lang LaSalle MENA said, “Although the Abu Dhabi government has taken measures to limit the future supply pipeline, significant new supply has been delivered in the office, residential and retail sectors during Q3 2011 as projects reach completion. Combined with tighter liquidity conditions and slowing global economic activity, this has increased the choice of high quality real estate available to tenants and put further downward pressure on rentals. The improving cost competitiveness, supported by the further implementation of market friendly government initiatives will have a positive impact on the Abu Dhabi real estate market by triggering further demand. While the steps’ being made by Abu Dhabi government to consolidate projects and government entities and re-prioritise investment is having a short-term negative impact on the market, these moves are highly positive for the medium term market outlook. The market is taking a short-term hit for longer term benefit.”
The following are the sector highlights outlined in the report:
Office: Grade A office stock across Abu Dhabi increased by 55,000 sq m to almost 2.4 million sq m in Q3 2011. With vacancies increasing to around 20% and up to 150,000 sq m of additional stock scheduled to enter the market in Q4 2011, further downward rental pressure is expected in both the Grade A and B office sectors. The UAE capital has become more competitive for tenants over the quarter, with a narrowing of the gap between commercial rents in Abu Dhabi and Dubai. This scenario and the expanding choice of high quality space available will have a positive impact on demand as more tenants will look to upgrade their space without increasing costs.
Residential: While a number of residential projects have remained delayed at handover stage, additional supply continued to enter the market during Q3, with a further 2,800 units delivered. This trend is expected to continue as scheduled handovers increase significantly in Q4 2011. With the current residential stock of 193,000 units rising to more than 246,000 units by end of 2013, the Abu Dhabi’s residential market will continue to be favourable for both buyers and renters. Over the past year, increased supply and vacancies in new good quality buildings resulted in rent declines of around 10% for prime two bedroom apartment units and more than 30% for lower quality units. Significant future completions of good quality residential buildings will continue to push rents down across Abu Dhabi through Q4 2011 and into 2012. Again this trend has a positive impact on demand, leading to a reduction in the level of daily commuting from Dubai.
Retail: The current retail space of 1.6 million sq m will increase to more than 1.8 million sq m in Q4 2011 as new malls including Paragon, Danet Mall and Bawabat Al Sharq are scheduled to open in Abu Dhabi. Additionally, substantial future supply by end of 2013 could push total retail stock beyond 2.4 million sq m. While this will be favourable to retailers and shoppers over the long term there is currently a limited supply of good quality retail space on Abu Dhabi Island which has caused retailer demand to remain strong. With a low vacancy level of 2%, the asking rents for regional and super regional malls on Abu Dhabi Island remain steady. During Q3 2011, the gap in rental rates between malls on Abu Dhabi Island and off the Island has widened due to downward pressure on rentals off the Abu Dhabi Island.
Hospitality: Unlike the other sectors of the market, there has been no major new hotel supply entering the Abu Dhabi market over the first 9 months of 2011. In Q4 2011, approximately 2,000 rooms are however expected to enter the market. Occupancy levels have witnessed a recovery over the year to date reflecting a positive trend in performance from 2010. With no new supply and an increase in hotel guests reported over the year to date occupancies have risen across the city. The correction in average rates continues to impact the market, with Abu Dhabi hotels registering a 20% contraction in ADR during the first eight months of 2011. Even as volume of hotel guests increase, the supply additions recorded in 2010 continue to put pressure on average rates and RevPAR levels.