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News Release

Abu Dhabi

Abu Dhabi real estate market remains stable in Q1, in spite of a slowdown in government spending and weaker sentiment according to JLL Real Estate Market Overview


​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:

Office:  

  • Total office stock reached approximately 3.4 million sq m GLA during the first quarter of 2016, with the only delivery being Al Maryah Tower on Al Maryah Island adding approximately 43,700 sq m of office GLA. An additional 286,000 sq m GLA is expected to be delivered by the end of 2016.
  • Demand for office space has reduced due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slow-down in government spending.  Large-scale requirements ​continue to be driven by the government sector and state-owned enterprises with the bulk of private sector demand focused on smaller office suites. 
  • The office market wide vacancy rate currently stands at 20%, however the vacancy rate is expected to increase due to the delivery of further office space and the slowdown in demand growth
  • In spite of weak demand, average Grade A office rents remained stable at AED 1,850 per sq m due to limited vacancy within high grade stock. However, Grade B office rents decreased by 5% in Q1 2016 averaging 1,120 per sq m from 1,180  per sq m in Q4 2015. This is mainly due to the slowdown in demand growth following the decline in oil prices, government spending and surplus Grade B office stock.

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".

Residential:  

  • A total of  719 units were delivered in Abu Dhabi  during the first quarter of 2016 bringing the total residential stock to approximately 246,000 units. Deliveries include Amwaj 2 in Al Raha Beach, Al Falahi Tower in Danet Abu Dhabi and The Wave Tower on Reem Island.
  • Approximately 4,000 units  are expected to enter the market by the end of 2016 mainly within Danet Abu Dhabi, Reem Island and Saadiyat Island.
  • Prime rents have remained stable this quarter (averaging AED 163,000 p.a. for 2 bed apartments within investment areas) due to relatively low vacancy in quality schemes. Sales prices have also remained stable at 16,000  per sq m – however the reduction in transaction volumes may put further pressure on prices this year.

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."

Retail:  

  • No major completions took place during the first quarter of 2016 keeping retail stock at approximately 2.6 million sq m GLA.
  • Approximately 63,000 sq m of retail GLA is expected to be delivered by the end of 2016 primarily within mixed-use developments.  Thereafter, large malls are scheduled for completion in 2018 – notably Al Maryah Central Mall and Reem Mall  amongst others.
  • Average line store rents within well-located malls remained stable at AED 3,000 per sq m p.a. (Abu Dhabi Island) and AED 1,860 per sq m p.a. (off Island). Vacancies remain minimal within established  regional and super regional malls.
  • Consumer spending power from the resident population, combined with year-on-year increases to tourism arrivals supports continual growth of the retail sector – and potential a continued upgrading of the market with newer high grade shopping centres superceding existing outdated stock.
  • During Q1 2016, while retail footfall has generally been maintained, there are signs of a short-term decline in retail spending – due to the reduction in employment growth and consumer confidence. While retail rents have remained stable, mall operators are expected to offer increased rent free periods, turnover rents and other leasing incentives to attract retailers.

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."

Hotels:  

  • There were no major hotel openings in during Q1 2016, with the principal opening being 213 serviced apartment units within Andalus Al Seef resort and spa in the Grand Mosque Area. 
  • An additional 3,300 hotel rooms are expected to enter the market by the end of 2016 with the opening of the Grand Millennium Bab Al Qasr, Gloria Downtown, Marriott, Fairmont Marina and Grand Hyatt hotels. Most of these properties will be positioned in the 4 and 5 star categories, further skewing the market towards the upscale to luxury segment.
  • Demand continues to grow quarter on quarter, principally driven by wide-ranging government initiatives to increase tourism, including the expansion of the International Airport and the national carrier Etihad Airways, the further improvement of Abu Dhabi's leisure offering and attractions, the hosting of world-class events and major campaigns by the Abu Dhabi Tourism and Culture Authority to promote Abu Dhabi internationally.
  • While tourism growth continues, Abu Dhabi's hospitality market continues to rely heavily on corporate demand – which has suffered over recent months due to the decline in oil prices and resultant impact on government spending. Accordingly, occupancy rates decreased slightly (almost 2 percentage points to reach 78% for the first two months of 2016), but with the greatest pressure on Average Daily Rates (dropping by almost 19% in YT February 2016 compared to the same period last year). As a result, RevPAR was also heavily impacted with a decline of 21% in YT February 2016.

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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