Abu Dhabi office rents stabilise

Office rental values in Abu Dhabi remained stable during the second half of last year, driven partly by a strong increase in demand from the government sector, which accounted for 15 per cent of the total occupier demand, up from 9 per cent in the preceding six months, according to a Knight Frank report.

But rental values for Grade A shell-and-core offices fell by 5 per cent year-on-year to Dh1,180 per sq m. The decline has been blamed on the removal of the rent cap, which reduced occupier demand due to associated uncertainties.

Shortage
Matthew Dadd, Associate Director — Abu Dhabi Commercial Leasing at Knight Frank, said, “Nearly half of total inquiries recorded in the second half last year were for space sized between 100 and 500 sq m. But a shortage in availability of 100-250-sq-m Cat A office space meant that activity levels within the 100-500-sq-m bracket were unusually low. Another 37 per cent of inquiries were for space sized below 100 sq m.”

Around 140,000 sq m of new office supply was delivered during the fourth quarter, according to figures from Jones Lang LaSalle. Although the vacancy rate rose sharply last year compared with 2012, it remained stable during the fourth quarter compared with the previous quarter, indicating strong absorption of new deliveries.

Government-backed entities account for around 64 per cent of office space in the capital. The increase in demand from the government has contributed significantly in maintaining the stability of office rental values. Demand from the private sector, on the other hand, was relatively slow, with most companies looking for smaller units of between 300 and 400 sq m.

Occupier sentiment
Knight Frank also reported that occupier sentiment in Abu Dhabi’s office sector has improved, with inquiries coming from a much broader range of industries, as companies look to relocate or expand their operations.

The leisure and hospitality (16 per cent), government (15 per cent), general trading (10 per cent) and oil and gas (9 per cent) sectors accounted for half of the total occupier demand.

The market-wide vacancy rate is expected to see a smaller increase to 36 per cent this year, according to Knight Frank. While around 600,000 sq m of new space is due to be completed this year, a large proportion of this has already been pre-let, contributing to the reduced vacancy rate.

A further drop in the rental values for Grade A shell-and-core office accommodation is expected this year, before stabilising next year.