With more Grade A office space coming on to the market in the second half of 2010, Asteco's Q4 2009 Abu Dhabi report predicts the rent gap between quality and lower grade properties will widen.
In such a scenario, businesses will look to upgrade to higher quality premises, says Steven J Morgan, head of Abu Dhabi office, Cluttons. "Much of the existing space is nearly obsolete and often fragmented. As long as rental levels are reasonable, businesses are likely to relocate to quality space as the global and regional economies recover."
Michael Grant, commercial property manager at LLG Property, says, "There are many businesses in Abu Dhabi currently based in old or substandard office space that would like to relocate, especially out of the old CBD, to offices that have good accessibility, car parking and facilities. The main issue is budget, and a key driver will be more affordable rental levels generated by an increase in supply."
Asteco's Q4 report found a decline in quoted rents, saying the gap between asking and transactional rates is closing.
Michael says the Abu Dhabi commercial market hasn't yet undergone a rental correction. "There is currently a reasonable supply of 800-1,200m² floor plate shell and core office space available, and our experience is that take-up rents continue to remain lower than asking rents due to a general reluctance to commit to budgets and cautious expansion plans among international companies.
"As more office supply comes on to the market we may see a price correction bringing asking rates down, thus reducing the gap between the rents landlords want to achieve and what clients are prepared to pay."
Steven believes office rents need to drop more to compete. "As long as rental rates are reasonable, demand could well meet supply, but they must come below the current levels or Abu Dhabi risks pricing itself out of the market."
Much depends upon local government take up, the consolidation of free zone regulations, budgets and the growth plans of the major companies, says Michael. "The new supply coming on stream will allow greater choice, and LLJ Property predicts this will create a greater emphasis on location, car parking and accessibility to Dubai being the key driving factors."
So is there competition emerging between Abu Dhabi and Dubai in the commercial market? Michael doesn't believe so "Those companies that wish to do business in Abu Dhabi need to have a trade license and an office here… ultimately, anybody that needs to operate here with any degree of seriousness has to establish themselves locally."
asmeerdijk@gulfnews.com
