Cluttons Middle East: Abu Dhabi market to end two year stalemate during Q2 2011
Cluttons, the real estate specialist that has enjoyed a dedicated presence in the Middle East since 1976 today issues its Abu Dhabi market reports for Q1 2011 covering the residential, commercial, retail and industrial sectors within the Emirate. This report is issued at a time when Cluttons has launched an Abu Dhabi property price Index, to provide international investors with a trusted and easy tool and to help foster knowledge and transparency in the marketplace.
Residential sector - Pricing Analysis:
Rental rates at the lower end of the market (Mohammed Bin Zayed City and Khalifa City A – B), have softened around 10% over the past quarter.
A one bed is on average 45,000 per annum.
The higher end of the rental market has dropped around 5% over the past quarter. A one bed is on average 105,000 AED per annum.
Freehold villas have seen moderate falls of 2-5% when compared to Q4 2010.
Private freehold GCC led villa market remain resilient with sales rates ranging from 800 to 1,100 AED per square foot.
Residential sector - Market Summary:
2011 looks set to be an interesting year for the Abu Dhabi residential market. Brokers consultants and investors all wait with anticipation for the delayed release of units, including RAK Tower in Marina Square, and apartments in Sun and Sky Towers.
The imminent release of these will result in a spell of increased rental and sales activity, after two years of a stalemate in the market. This will likely cause a drop in average rental rates and the development of a two-tier market.
Rentals at the lower end of the market have seen drops of around 10%, whilst drops in more prestigious areas such as the northern area of Abu Dhabi island have been less severe, at around 5%. The villa sales market has also seen moderate falls of around 2-5% in developments such as Al Reef, whilst private freehold GCC led villas have remained resilient.
Office - Pricing Analysis:
Lease rates have fallen consistently since the peak of quarter three 2008 when average prime rents reached 3,800 per square metre.
Average prime commercial rents now stand at around 1,600 – 1,800 per square metre.
Technip concluded one of the largest private office deals in the Emirate, agreeing a five year lease in Guardian Towers at 1,250 per square metre.
The market faces an uncertain future over the next 12 months, with a further 400,000 square metres of space expected to be added to the market by the end of 2011.
Office - Market Summary:
The occupier market continues to face challenges largely due to subdued economic growth and weak business confidence. Generally take-up has been slow, and when matched with significant new office block completions has done nothing to restore a downward rental market.
As ever, successful landlords are those that offer most attractive terms and incentives and who recognise the benefits of a fully leaded building against holding out for better rents. For landlords to remain competitive they will need to be more creative in their offerings and consider breaking up larger shell and core floor plates. Furthermore, a new breed of landlord will soon play a major role in the positioning of lease rates, as units are handed over in investment areas such as Sky Tower and Infinity Tower. They will be willing to offer space below market rates to bolster demand and stay ahead of further declines.
Retail - Pricing Analysis:
Low transactions and strong demand has stabilised rents between 2,500 and 2,700 per square metre per annum.
The newly opened Dalma Mall in Mussafah has increased leasable retail stock by 147,000 sqm.
Total retail supply currently stands at 1.2m square m and this could double to 2.5 million sq m by 2013.
Retail - Market Summary:
Retail performance in the Capital continues to buck the general trend, with high occupancy levels and strong demand keeping rental rates stable. The newly opened Dalma Mall in Mussafah is the first new mall to come onto the market, and will be followed by a series of new shopping malls currently under construction including Yas Mall, Mushrif Mall, Paragon Mall and BMC Mall Mussafah. This will double the amount of retail space in the Emirate and will make the market much more competitive, and able to catch up with Dubai. It is expected that rents will fall moving forward; especially after tenant incentives are taken into account. That said, upmarket pitches in affluent centres will continue to enjoy robust occupier demand.
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