Dubai:
Businesses in Abu Dhabi shouldn’t rush in to secure new premises — chances are they could get even better terms as office rentals remain under intense pressure. In secondary locations, office rents dropped 8 per cent all through last year and “further declines” are expected, according to a new update from the consultancy CBRE.
And “no imminent recovery in performance (is) anticipated,” said Matthew Green, Head of Research and Consulting UAE at CBRE M.E. “Abu Dhabi is currently experiencing widespread deflation of rental rates for non-prime assets, driven by softening demand fundamentals, rising inventory levels and vacancy rates.”
Interestingly, the consultancy says that rentals at the top-end of the emirate’s office market has not had the same extent of correction as secondary locations did. This is so despite weak demand and “limited interest for new office spaces”.
“Prime rentals have shown greater resilience to the market pressures and currently average around Dh1,800 a square metre (Dh168.22 per square feet),” the report says. “However, landlords are offering more incentives to tenants, including longer rent-free periods, which although not impacting the headline rent is ultimately resulting in lower occupational costs for occupiers.”
According to market sources, one thing helping Abu Dhabi’s office space is that not too much capacity came online in the last year and a half. Much of those that did had already secured blue-chip tenancies and were thus suitably cushioned against the current correction.
Abu Dhabi’s residential property market — and its developers — are trying to mirror what Dubai’s went through last year. In the first-half of 2016, Dubai developers scaled down ongoing project activity to make sure not too much supply would end up getting completed with limited buyers. But once the market picked up for certain types of offerings — mid-market homes — and emerging locations, they started to get busy with off-plan launches. And the pace has been maintained into this year.
Abu Dhabi is yet to get to that point. For one, the market continues to be saddled with high-end homes and more in the project phase. With the few launches there were in recent months, developers have tried to bring the price tag down, but nowhere near the mid-market offerings in Dubai.
Also, there aren’t those readily available emerging locations where developers can pitch in with new mid-market launches and get transaction volumes moving.
“Al Raha Beach and Reem Island remain popular investment locations with typical sales rates ranging from Dh14,250 — Dh17,750 a square metre (Dh1,331-Dh1,658.9 a square foot),” the report adds. “Al Reef and Hydra Village, which serve as more cost-sensitive locations, have prices between Dh8,500-Dh12,375 a square metre (Dh794.39-Dh1,156.5 a square foot).” This sensitivity to cost is clearly showing up in demand patterns in the rental space. Smaller homes continue to show “relative stability” in their lease rates compared to their larger peers. “Whilst many other higher quality locations have been experiencing negative rental performances, more affordable locations have generally experienced steadier conditions prevail,” the report stated. “This reflects the general shift towards affordability amid a softer economy and weakening demand levels.”
