CBRE: Abu Dhabi experiences rising activity in the community retail segment

- Hospitality: Abu Dhabi welcomed around 16.23 million visitors during the first 8 months of the year - Residential: Whilst overall fundamentals remain weak, there is sustained demand for affordable housing units which cater to the low-to-middle income segments of the population Dubai, 31 October 2017 – Driven by domestic demand, the contribution of wholesale, retail trade, hotel and restaurants accounted for around 12% of total GDP in Abu Dhabi, according to the Q3 2017 Abu Dhabi MarketView by global real estate consultancy firm CBRE. Commenting on Abu Dhabi’s retail sector, Mat Green, Head of Research & Consulting UAE, CBRE Middle East, said, “Whilst 2017 has not seen the delivery of any major new retail facilities, there is rising development activity in the community retail segment, with multiple new centers being built as part of mixed-use masterplan developments, and within the Emirate’s satellite towns, as the government strives to provide better quality facilities and more conveniences to the local population.” Major upcoming malls include Maryah Central and Reem Mall, both of which are regional sized centres, with GLAs of 146,000 sqm and 200,000 sqm respectively. The Emirate will also see the handover of Al Falah Medical Mall in Khalifa City during Q3 2018. The scheme will offer a holistic wellness provision, and represents the first concept of its kind in the UAE. During the quarter, prime rents for typical line shops (mall-based) ranged between AED2,500 – 3,200/m2/annum whilst similar units within off-island locations had rents between AED2,000 – 3,200/m2/annum. Prime street retail shops in central locations such as Khalifa, Corniche, Tourist Club Area, Hamdan and Khalidiya, have annual rentals of between AED 2,200-3,500/m2/annum in comparison to the AED 1,000 – 2,500/m2/annum observed rents for similar retail spaces in secondary locations. With demand levels remaining subdued, and with consumers remaining more cautious with their spending, there is likely to be further pressures felt on both rentals and occupancy rates in the coming quarters. According to the report, despite observed improvements in overall hotel guest numbers, the hospitality sector’s general performance indicators such as occupancy, ADR's and RevPAR all remain down. Year to date occupancy rates to September 2017 equated to 69%, down 2.1% from the 70% achieved in the period year-to-date September 2016. In the same period, ADRs dropped by just over 8% from AED437/room/night in September 2016 to AED400/room/night in September 2017. With declines recorded in both occupancy and ADR, the impact on RevPAR was accentuated, with rates falling by 10% from AED307/room/night to AED275/room/night. “With demand from the corporate sector remaining muted, strengthening of domestic visitor numbers and further expansion of MICE initiatives have become increasingly important as hotels look to improve upon the current weakening revenue performances,” said Green. Abu Dhabi’s average residential rentals experienced further downward pressure, with a 3% quarterly drop decline, resulting in a 11% decline on an annualised basis. However, the market is witnessing a somewhat mixed performance, with declines of 1-6% recorded depending on the specific location. As a result, landlords are being forced to become more flexible in their negotiations with tenants, in order to lessen the potential void risk and strengthen tenant loyalty. On average, annual rentals for upper-middle and high-end residential units ranged from AED 80,000- AED120,000/annum for 1 bedroom apartment units, and AED110,000–AED160,000 for 2 bedroom units. “Amidst falling rental prices, there remains an apparent shortage of housing units targeted towards the dominant low to middle income segments of the population. Whilst a number of mid-market projects have been launched and subsequently delivered, the size of these developments remains insufficient to cater to the overall market demand for affordable housing options”, commented Green. In terms of the sales market, values have continued to soften, dropping by nearly 3% on a quarterly basis and 9% year-on-year. The sustained downside in sales rates, reflects the combination of weak transactional demand and overall negative market sentiment. Abu Dhabi’s office sector continues to experience a softening of market conditions, as a contraction of employment growth and weak demand fundamentals add further pressure to both rental and occupancy rates. Consequently, occupiers remain cautious with their capital expenditures and new office requirements have become more limited as a result. There is also sustained evidence of tenants sub-leasing excess accommodation, as they strive to reduce operational overheads. Average prime office rentals equated to AED1,675/m2/annum during Q3 2017, reflecting a 9% declined from same period last year, whilst secondary office rents average AED850/m2/annum, which is around 15% lower than during Q3 2016. “There were no major new office completions observed during the quarter, meaning total existing stock remains at around 3.96 million sqm. As a result, there is now around 0.4 million sqm expected to be completed by 2019. However, in the current environment, there are likely to be further delays in delivery timeframes, as developers try to coordinate completion timings to better align with demand levels”, concluded Green.