Dubai: Much of Abu Dhabi’s ongoing property market upturn is built around on what is happening within the residential space and, to a lesser extent, by growing retailer interest in the massive new malls that the city will soon host.
Demand for offices is lagging behind at quite some distance, with developers unwilling to take the plunge with new projects until such time they can be assured of investor or tenant interest.
And there is nothing on the horizon to indicate a change is to happen any time soon. “Abu Dhabi has seen delivery only of a limited number of [office] schemes on Al Reem Island, with further deliveries on the City of Lights projects in the pipeline,” said Steve Morgan, who heads Cluttons’ Middle East operations. ‘Occupier demand for offices owned by private investors is limited; occupiers prefer to deal with larger, institutional landlords when taking space, rather than working with individual landlords.”
Which is why, Morgan insists that “Current conditions are not favourable for this type of product to be launched into the market. Therefore, developers are not looking at this segment of the market.”
From a longer term perspective, this could be just what the market is in need of. With no new launches acting as distraction, developers with existing - or soon to be delivered - office stock can focus all their energies on leasing programmes. There are potential tenants, local and international names, around who could be worked on to sign up.
Demand at the top end
There is certainly demand at the top end of the office leasing space, as evidenced by properties such as the Etihad Towers. Other prime locations too are scheduled to make their presence felt, including Capital Tower at the Capital Centre, The World Trade Centre Office Tower (WTC) at Central Market and Landmark Tower on the Corniche. This year should also see Finance House at the Capital Centre and the new Abu Dhabi Islamic Bank Headquarters on Airport Road adding their own substantial presence.
There is more on the way. “With Sowwah Square due to be delivered as an international financial free zone, we anticipate that rents for the scheme will be higher than similar grade A space in the emirate,” said Morgan. “We expect this to aid in the attraction of larger international occupiers, which will help broaden the demand base [and] providing impetus to long term stability of the office market.”
Based on Cluttons’ estimates, current premium rents would be in the range of Dh1,850 a square metre, and “holding steady”. “Current levels of occupier demand are closely aligned with the available supply, particularly at the top end of the market, which is helping to hold rents,” Morgan said.
However, down the value chain, there is a trend that is just not there for another property category in the UAE. Rentals at secondary office properties has seen a decline and could be in for more.
“After dipping during Q2-2013, secondary (around Dh1,200 per square metre) and tertiary (Dh800 psm) rents have registered no change over the past three quarters,” said Morgan.
“Prime, secondary and tertiary rents are consistent throughout most sub-markets and we are yet to see the evolution of micro-markets on Abu Dhabi Island.
“For more secondary stock we expect rents to decline further this year, as occupiers capitalize on what are perceived to be good deals for prime stock.”