abu dhabi focus
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Attracted by its sound financial status, propensity to attract blue chip partners and undersupply of Grade A real estate required to support its Plan Abu Dhabi 2030, international developers, financiers and investors have exhibited sustained interest in the local real estate market
‘Nevertheless, in a relatively unstable economic climate, tenants are more price-conscious
than ever. The majority are adopting a ‘wait and see’ attitude due to the economic climate and the level of supply coming onto the market, in order to ensure they get ‘best value’ for the lease terms negotiated.’ However, it predicts that there will be more leasing activity in 2010: ‘The level of leasing transactions in the office market is likely to improve during 2010. As the economic climate improves, corporate occupiers, in conjunction with the completion of new high standard office stock, will begin to identify the locations and importance of a presence on the ground in Abu Dhabi.’ IB’s report highlights the metamorphosis in Abu Dhabi’s commercial market in the last
two years. ‘Prior to 2008 there was little change in the Abu Dhabi commercial office market. Government offices and foreign oil and gas companies made up the lion’s share of office demand…there was little need to improve upon the commercial offering. ‘Fast forward to 2010 and the Abu Dhabi office market is virtually unrecognisable. Grade
A requirements from new multinational JVs across industries and services abound as well as expansion demand from international firms who had mistakenly believed they could service Abu Dhabi and Dubai customers from their Dubai offices.’ It continues: ‘While the profile of office demand in the city has changed dramatically in the past
few years, the underlying quantity and type of supply have not kept pace. This supply-demand imbalance led to a spike in rental values in 2008 and early 2009 in much the same way that Dubai had experienced in 2007 and early 2008. Many new tenants took whatever space was available, often in undesirable locations or with specifications that were ill-suited towards their corporate requirements. In H2 2009, despite a major shift in service sector activity from Dubai to Abu Dhabi, peak office rents have tumbled as Dubai firms force employees to commute daily to Abu Dhabi-based clients and prospects and expansion plans are put on hold.’ Vacancy rates for office accommodation during Q4 remained low at around two
percent. However, CBRE says the impact of upcoming stock and weaker demand for office accommodation could see this rate increase during the course of 2010. Yet it highlights that the amendments to commercial law encouraged an increase in start-up businesses which could fuel demand for commercial space.
COMMERCIAL CHALLENGES
As infrastructure developments plough ahead to secure future investment funds, the current reality of Abu Dhabi’s office market is more subdued, according to the CBRE report. In 2009 prime rents continued to slide from Q3 reaching AED2,600 (US$708) per square metre per annum, a substantial drop of 45 percent from peak prices achieved in 2008. But despite the lower rents, it was still a challenge for owners and agents to find tenants.
The report continues: ‘With increased availability, end-users now have greater accommodation options and improved bargaining power to deal with landlords. Overall demand remains weighted towards smaller office units, typically ranging from 200 to 600 square metres. Asteco’s Abu Dhabi Report Q4 2009 report adds: ‘There are a number of new office
buildings recently completed in Abu Dhabi where landlords are willing to accept rents as low as AED1,600 (US$436) per square metre. This time last year, the same unit would have been quoted at around AED3,000 (US$817) per square metre.’ Yet it states that the disparity between landlords’ asking rents and transactional
values is still very apparent, although the gap between the two seems to be closing. It also asserts that the quality of the new supply is widening the gap between Grade
A stock and secondary space, and adds: ‘Where previously tenants have occupied very poor quality second-hand space in converted residential buildings with no parking, many are now beginning to weigh up the advantages of being in purpose-built offices in up-and-coming prime business locations.
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/apr-may 2010
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