Abu Dhabi office rents decline 6% in Q3

The handover of significant new grade A office buildings during 2011 will make it the year for tenant movement, CB Richard Ellis (CBRE) said on Monday.

“More prudent occupiers in the capital are thus looking to exploit the tenant-friendly market and find a long-term solution to their office needs.  In this challenging environment the emergence of longer term leases is an obvious development, as occupiers look to tie down landlords to more attractive offers and landlords seek greater financial security,” Matthew Green, Head of Research & Consultancy UAE, CBRE, said in its third quarter report on Abu Dhabi real estate.

Office market in the capital continues to see negative rental growth while stock levels see steady expansion. During the third quarter, office rents ranged between Dh1,400 and Dh2,750 per square metre pa, a six per cent reduction from the previous quarter.

Jones Lang LaSalle said on Sunday that despite many projects being delayed, a further 1.5 million square metres is expected to enter the market before the end of 2013, increasing the total office stock to 3.7 million square metres. Vacancy levels currently stand at eight per cent for the quarter.

CBRE said that significant improvements are now being noted in the residential leasing market as greater choice and more realistic rents come in to play.

“Despite an overall slowdown in rents and a steady inflow of residential product, it is evident that some locations and developments still command significantly higher rental rates.  The key determining factors are typically location, product quality and access to facilities and amenities,” the report said.

The emergence of new off-island communities such as Raha Beach and Al Reef is helping to transform the core dynamics of the market.  A substantial number and variety of new residential offerings are now available with tenants finally afforded a more suitable choice of accommodation.  Provision of proper facilities and amenities is now becoming more commonplace as the inadequacies of older residential stock are realised and developers look to offer a more integrated community lifestyle for heir tenants.

According to CBRE, positive economic growth forecasts and major expansion in the commercial sector are likely to be the chief drivers for growing demand in the residential market.   However, despite expectations of more encouraging conditions ahead, the leasing market will continue to see some volatility in the short-term as schemes complete and new communities are established.

Short-term localised pockets of oversupply are a possibility within new development areas, with many tenants remaining vary until product quality can be quantified and any teething problems with infrastructure resolved.  The role of the owner occupier is also likely to be important, however the actual level of influence will be easier to understand once more residential stock is handed over and more solid trends start to appear.

“Overall, government initiatives remain vital to the fortunes of the Abu Dhabi market and to the UAE as a whole.  The spillover effect from major public investment throughout the economy is much needed stimulus for the property market,” CBRE said.

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