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Abu Dhabi’s smaller, flexible offices outperformed the wider market

- Hospitality: Abu Dhabi’s tourism sector continues to have a positive impact on economic activities in the Emirate, despite the challenging hospitality environment.
- Residential: The mid-market residential offer remains broadly resilient to downward market pressures amidst limited supply.

Dubai, 3 May 2017 – Despite wider market challenges, demand for smaller, flexible office spaces is likely to grow as firms look for ways to cut down occupational costs and keep capital expenditures to a minimum, according to the Q1 2017 Abu Dhabi MarketView by global real estate consultancy firm CBRE.

Abu Dhabi’s wider office market continues to suffer from weakening demand fundamentals due to soft economic conditions and ongoing government cost cutting measures, which have negatively impacted demand in the commercial sector. Consequently, leasing activities during Q1 2017 have remained relatively subdued, adding further pressure to market rental levels. However, quarter-on-quarter changes have been minor, reflecting the relatively limited new supply delivered in recent quarters, with many developments seeing completion timings elongated as market challenges have mounted.

Total office stock has increased by around 2% year-on-year, reaching 3.9 million m² by the end of the first quarter 2017. However, analysis of the future development pipeline reveals a sizable 1.4 million m² of new office accommodation, which could enter the market over the next four years. As a result, further softening of rental rates appears to be a realistic outcome.
Mat Green, Head of Research & Consulting UAE, CBRE Middle East, said, “Positively for occupiers, the heightened competitiveness of the office landscape means that a wider array of accommodation options are now becoming available, whilst Landlords continue to offer greater flexibility in their terms, to encourage deals; this includes accommodating demand for smaller office spaces (less than 200 sqm).”
According to the MarketView, Abu Dhabi’s residential sector continues to experience consolidation, with falling rates across majority of the market during the first quarter. Demand in the transactional market has remained particularly sluggish, with the sector exhibiting signs of further contraction, with average sales prices down by 2% quarter-on-quarter and 8% year-on-year, reflecting the limited demand for investment.
“One brighter spot has been the capital’s mid-market focused housing options, which continue to demonstrate a greater resilience to ongoing downward market pressures, against more pronounced declines for premium residences,” said Green.
On average, freehold apartments prices in the Al Raha Beach and Reem Island masterplans now range from AED14,000-17,200/sqm, whilst more affordable investment options in Al Reef and Al Ghadeer are commanding prices from AED8,200 -12,000/sqm. A similar situation is occurring in the residential leasing market, with sustained declines in average rentals rates, with a 2% drop quarter-on-quarter and an 8% year-on-year drop.
However, rents in more affordable off-island locations have remained broadly stable, reflecting the relative undersupply of housing options for the lower income groups in the capital. This reflects a continued shift towards affordability, amidst ongoing economic uncertainty.

On average, two bedroom apartments now range between AED125,000-175,000/unit/annum on main the main Abu Dhabi island, compared to typical rentals for off-island units of AED60,000/unit/annum.

Prime developments on Saadiyat Island, Al Raha Beach and along the Corniche area are found to have average rentals of between AED140,000-200,000/unit/annum for 2-bedroom apartments.

Luxury mixed-use locations such as Saadiyat Beach Residences have maintained notable rental premiums, with residents benefitting from access to wider range of services and amenities, as well as high quality apartment products.
However, with ongoing erosion of corporate leasing packages, housing allowances and overall take-home salaries, many Abu Dhabi residents are orientating towards more value driven accommodation options, with downsizing of unit typologies and relocations to lower cost areas of the city becoming more prevalent amongst the expatriate population.

The broadening effect of economic uncertainty has certainly encouraged a more pragmatic approach from tenants, with smaller studio and 1-bedroom units remaining the highest in demand, particularly around the CBD, whilst larger 2-bedrooms units remain in stronger favour in secondary and tertiary locations, particularly off-island.
According to the report, Abu Dhabi continues to experience growth in both its international and regional visitor numbers, with 5% growth in passenger traffic recorded during 2016.

The sustained growth has been made achievable by the continuous expansions initiatives of Abu Dhabi International Airport, with passenger traffic rising by close to 400% during the period, from less than 7 million in 2006 to close to 24.5 million in 2016.

During more challenging economic times, non-oil based sectors such as the tourism and hospitality will continue to play an increasingly important role in raising economic activities.
According to data from STR Global, Abu Dhabi’s year to date occupancy rate up to March 2017 was recorded at 75% down from 78% in March 2016. Average ADR’s have also shown a downward movement, dipping 4.4% from the AED505/room/night in March 2016 to roughly AED482/room/night in the same period during 2017.

With both occupancy rates and ADR’s experiencing declines, RevPAR’s subsequently dipped 8.5% during the period. In March 2017, the average RevPAR equated to AED362/room/night, down from the AED396/room/night achieved in March 2016.

“During the quarter, Abu Dhabi witnessed the opening of the Marriott Hotel Al Forsan located in Khalifa City. This new hotel addition further increased the share of upscale hotels, reaching circa 40% of the total hotel inventory,” concluded Green.


Published on: 03 05 2017