Abu Dhabi gearing up for recovery

"The problem in this market for international investors is that they can't buy freehold. (Options are 99-year leasehold or 50-year renewable surface ownership.) Abu Dhabi itself is a relatively small market compared to other global locations; the actual commercial market is about 1.85 million m².

Most of that is located in the Tourist Club area, but that market is starting to expand out slightly and move further down the island, so it's quite a tight market. An awful lot of supply doesn't need to come on to the market to make a large impact on the ratio of demand and supply.

What we have seen is developers such as Aldar have slowed down some of their commercial developments, which is sensible for market conditions, but my concern is that everyone is starting to slow down.

There is a risk, actually, that when we come out the end of the cycle and the demand picks up again, we're going to be in a competitive situation."

"It's great that a project such as Al Sawar is coming on to the market. It will put Abu Dhabi on the map internationally. The quality of the building is very good, which is something that has been lacking in this market. The deliverability of that product in the right timeline, to the right specification, for the right target audience and then going forward with the right management is very important for Abu Dhabi. People say that Abu Dhabi has played second fiddle to Dubai for years, and to a degree, that's correct. Dubai has always been a little more proactive. Abu Dhabi, however, has taken a more calculated view; you only have to look at the 2030 plan and the amount of work that went into that to see how important it is to Abu Dhabi."

"For the next couple of years, the key message for Abu Dhabi is to sort out its infrastructure and make sure that capital is spent on it. When plots are delivered, they must come as serviced plots. What we have at the moment are plots that are sort of plopped out there on their own. There's also the legal side of it: making sure that the law is mature enough and the statutes are in place to deal with how the market is likely to change in the years to come. In the next two to four years it's looking at what's going to be happening in the next decade or 15 or 20 years. Abu Dhabi has a great opportunity in the next two years to get these things in place, to get prepared and ready."

If you want some idea about where the market is going, it's worthwhile to look at where it has been, says Richard Foulds, director of CB Richard Ellis.

"Everyone knows that the market here has grown at an excessive rate over the past few years; demand for products has been substantial, occupiers moving into the market have been substantial. What we have seen as far as the credit crunch and the global crisis is that the banks are effectively pulling away the cash, causing a real slow down, not only in terms of physical construction but also in terms of international occupiers looking to come into the region," he says.

"What we saw before the credit crunch was a number of parties in Dubai considering opening offices or relocating in some instances, to Abu Dhabi. The view was that in time Abu Dhabi would potentially become the market leader it's the capital, the leading emirate, and it would have more control over the UAE markets. We were starting to see that happen when, unfortunately, the credit crisis hit. It's certainly hit here; it has hit everywhere," he adds.

"I think Abu Dhabi is in a slightly better position than other Middle Eastern locations because it didn't have the oversupply of products that somewhere like Dubai has. When you look at the figures for Dubai compared to Abu Dhabi, there's a substantial difference."

One of the capital's most noteworthy commercial freehold projects is Al Sawar Square on Al Sawar Island, says Richard.

This small island, which is opposite Abu Dhabi Mall and next to Reem Island, will house the city's new stock exchange and eventually become Abu Dhabi's financial centre.

This and other developments have so much potential, that Foulds fears that the current market lethargy may leave the capital unprepared for the growth that's likely to happen in just a few years' time.

"Ironically, my biggest concern about this market is that, if they slow down everything too much and don't get into place the laws for occupiers or international investors coming into the region, we could still be

in a difficult situation when we come out the other end of the cycle at the bottom of the market," he says.

"We've seen Abu Dhabi go through a huge increase in terms of values and that's simply because of demand and supply, an influx of international investors coming here and prices, in some instances, doubling.

"We got up to prime rent touching Dh465/ft² for office space 18 to 24 months earlier, it was half that amount. We've seen some deals over Dh500/ft², which is pretty excessive. Those are rents similar to London markets."

Established in 2005, CB Richard Ellis in Abu Dhabi offers the same consultancy advice available at any of its other international branches.

"We offer services such as valuation, development consultancy, agency, tenant representation, landlord representation, and research. Research, interestingly enough, is one of those areas that we've put a huge amount of resource into in this region because it isn't as transparent as more mature markets, so we've spent a lot of time making sure that we are leaders in this field. We advise clients all the time in terms of looking into the region, mainly in terms of occupiers."