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JLL, the world's leading real estate investment and advisory firm, today released its first quarter (Q1 2016) Abu Dhabi Real Estate Overview report that assesses the latest trends in the office, residential, retail and hospitality sectors.
JLL reported that Abu Dhabi's real estate markets have generally been stable during Q1 2016 – in spite of the continued impact of lower oil prices and a reduction in domestic government spending. While demand has reduced, supply completions have also reduced compared to previous years, leading to relatively stable market conditions.
David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA, commented: "The general trend this quarter and indeed last year has been relative stability – characterized by low vacancy rates in high quality stock and prime rents generally remaining stable across each asset class."
He added "While the market has generally been stable, signs of caution remain – with a significant reduction in government domestic spending and a decline in transaction volumes and sentiment. We still expect demand growth to continue from projects commenced while oil prices were high, but job cuts and reduced investment will slow down demand growth. While there are some initial signs of government spending starting to return – particularly for mega tourism attractions – we expect caution to prevail. The extent to which market stability is maintained very much depends on the return of domestic government spending in spite of a reduction in oil revenues."
He commented further "The good news is that, while we are going through a period of weaker demand, supply completions are at a 10 year low – due to developers remaining cautious, tightened liquidity and more extensive regulation – leading to smaller scale releases and developments being phased over time. Many of the large scale development releases during the 2007 to 2008 upswing were over-sized and took a long time to be absorbed during the subsequent downturn. So having smaller digestible phases aligned to demand is a good thing, signifying a maturing and more sustainable real estate market."
SECTOR SUMMARY HIGHLIGHTS – ABU DHABI:
David Dudley commented "The office market has been the most affected by the decline in oil price and government spending. There are signs of oil companies and government entities reducing headcount and office space requirements. However this is mitigated by minimal increases to new speculative supply – the majority of new office buildings are either pre-committed to end users or are in secondary locations.
He added "While we are going through a period of weaker demand, Grade A Office Rents have generally remained stable, with limited vacancy in high quality buildings. Market-wide vacancy will continue to increase as further office space comes on stream during a period of weak demand. However, Grade A vacancy remains relatively low and therefore we expect Grade A rents to be broadly upheld".
David Dudley commented "For the residential rental market, while demand growth has reduced, this is offset by a major reduction in annual supply completions leading to relatively limited vacancy in high quality schemes. Annual supply completions historically averaged 10,000 units per annum – however current supply completions are at a fraction of that."
He added "During 2016, we expect residential rents to remain relatively stable in some sub-sectors, with a modest decline in others – but given relatively tight vacancy rates in quality schemes and limited supply completions, we are not expecting a dramatic fall in prime rents. In the event that the current pause in government spending remains for a while longer we could see more significant downward movement of rents.
Commenting on the residential sales market "Abu Dhabi's residential sales market has historically been dominated by investors speculating on price growth with a much smaller proportion of the buyer market representing yield investors and owner occupiers. Over recent years, prime residential prices went up at 25% per annum which was unsustainable. As the market softened during 2015, prices have remained stable but transaction volumes have dropped significantly. During 2016, we expect transaction volumes to remain low which may start to put pressure on sales prices."
David Dudley commented "While significant retail space is set to enter the market from 2018, the development pipeline has reduced and demand growth remains positive from the spending power or the local population and continued tourism growth. The new malls, building on the success of Yas Mall will lead to a continual upgrading of this sector. With greater competition, we expect the market to polarise with lower quality malls needing to be re-positioned. In the meantime, retail rents are expected to remain stable."
David Dudley commented "The outlook for the hospitality sector remains positive, driven by major government-backed projects to drive tourism growth, resulting in major increases to annual visitor arrivals. Amidst general spending cuts there is increased evidence of continued government continuing to invest in mega tourism projects, particularly on the flagship Yas and Saadiyat Islands."
Abu Dhabi Prime Rental Clock
This diagram illustrates where JLL estimates each prime market is within its individual rental cycle at the end of the relevant quarter.
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