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According to JLL Real Estate Market Overview
JLL, the world's leading real estate investment and advisory firm, today released its Q3 2016 Abu Dhabi Real Estate Market Overview report which assesses the latest trends in the office, residential, retail and hotel sectors.
The latest market summary report discusses ongoing weak demand across the office, residential and retail sectors which has been evident since the decline of oil prices at the end of 2014 and continues to impact government spending and general sentiment. However, amidst general spending cuts there is increased evidence of continued government investment in Abu Dhabi's mega tourism projects and overall positive demand in the hospitality market.
Commenting on the hospitality sector, David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA, said: "The general trend for Abu Dhabi's hospitality market has been positive growth of tourism demand being offset by a decline in corporate demand and new supply completions. In balance this has resulted in a slight increase in demand reducing pressure on occupancy rates but a decline in average room rates."
The report highlights increased supply with two new hotel openings adding more than 400 rooms to the market this quarter – the Marriott Downtown Abu Dhabi at Bloom Central and Gloria Downtown Hotel. Furthermore, the serviced apartments sector witnessed the delivery of the Marriott Executive Apartments at Bloom Central. A further 1,500 rooms are expected in the capital by the end of the year from three large hotel openings - Grand Hyatt Hotel and Residence Emirates Pearl, Millennium Bab Al Qasr and the Marriott Al Forsan.
Hotel occupancies in Abu Dhabi have remained largely stable at 70% this quarter with a marginal decline of 2.3% compared to the same period last year. According to the report, the hospitality industry's diversification towards leisure tourism continues to gain traction and has reduced pressure on occupancy rates.
Despite increased supply and healthy occupancy rates there is continued pressure on average daily rates (ADRs) which declined by 10% compared to the same period last year.
David Dudley added: "The medium term hospitality market outlook remains highly positive due to wide-ranging government initiatives including the expansion of Abu Dhabi International Airport and Etihad Airways, further improvement of Abu Dhabi's leisure offering, the hosting of world-class events and major campaigns by
Abu Dhabi Tourism & Culture Authority to promote Abu Dhabi internationally."
Overall, the report highlights the continued decline in performance of Abu Dhabi's real estate market across all sectors.
David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA, commented: "Ongoing cost cutting and downsizing in the oil and government sectors have continued to reduce demand across all sectors of Abu Dhabi's real estate market.
"While supply remains under control, increasing vacancy rates are placing downward pressure on residential rents and sales prices. Residents in Abu Dhabi are increasingly looking for cheaper and smaller options owing to further job cuts and reduction in employment allowance and benefits. This quarter an additional 1,160 units were delivered in Abu Dhabi. Rents are expected to further decline as supply will continue to increase with another 3,000 units expected by the end of 2016."
On the office market David Dudley added: "We are witnessing a similar trend in the office market, rents continue to decline for both Grade A and Grade B buildings as oil and government entities consolidate and downsize and therefore increase vacancy rates.
According to the report, the government is considering the merger approach in an effort to further combat economic challenges. "Many of Abu Dhabi's government entities are going through a period of re-structuring in response to tougher economic conditions. Recently announced mergers include sovereign wealth funds (Mubadala and IPIC), banks (NBAD and FGB), ADNOC subsidiaries and government entities.
"More mergers are expected to be announced later this year leading to further rationalization of office space. These mergers, combined with general spending cuts have impacted population growth and disposable incomes – leading to a decline in residential and office demand and retail spending," added David Dudley.
Commenting on the retail market he added: "While real estate rentals are largely declining, retail rents have actually remained stable this quarter and there are minimal mall vacancies. To keep down vacancies, we've seen mall operators continuing to offer incentives to attract retailers but the reduction in consumer retail spending has continued throughout this quarter.
"The government's continued investment in Abu Dhabi's leisure tourism offering is expected to boost retail spending in the long run with increased numbers of tourists but in the short term a reduction in corporate hospitality is still affecting retail spend."
Sector summary highlight – Abu Dhabi
Office: This quarter there were no deliveries in Abu Dhabi, keeping the total office stock stable at approximately 3.5 million sq m of gross leasable area (GLA). Approximately 50,000 sq m of GLA is expected to enter the market by the end of 2016 with the delivery of ADIB HQ on Airport Road.
The majority of office demand in Abu Dhabi is from oil and government entities. This is seen as the main reason for average Grade A and Grade B rents decreasing by 2% and 5% this quarter reaching approximately AED 1,760 / sq m and AED 1,030 / sq m respectively.
The overall vacancy rate has continued to increase marginally over recent months. The decline in demand has generally been mitigated by the lack of new speculative supply and therefore vacancy rates remain slightly lower than a year ago.
Residential: The residential market in Abu Dhabi continues to face downward pressure as rents and sale prices registered quarter on quarter (Q-o-Q) declines and annual declines versus Q3 2015. Average prime rents for 2 bedroom apartments witnessed a nominal decline of 2% Q-o-Q reaching approximately 157,000 p.a.
Average prime sales prices declined by 3% Q-o-Q to reach approximately AED 14,750 / sq m affected by the continued reduction in transaction volumes throughout 2016.
The demand for residential also declined due to the reducing population with a further wave of job cuts within government, oil and gas and financial services sectors.
A total of 1,160 units were delivered during Q3, bringing the total residential stock to approximately 247,300 units. Deliveries include Shams Tower and Najmat C21 Tower on Reem Island, Saraya One on Saraya and two residential buildings within Rawdhat.
Approximately 3,000 units are expected to enter the market by the end of 2016 mainly within Reem Island, Rawdhat and Saraya. However, some of the developments are likely to experience delays.
Retail: Retail: No major completions took place during Q3, with total retail stock remaining at approximately 2.6 million sq m GLA. Approximately 51,000 sq m of retail GLA is expected to be delivered by the end of 2016, primarily within mixed-use schemes.
However, supply is expected to increase significantly in the short to medium term with the delivery of Al Maryah Central Mall in 2018 and others including Reem Mall over subsequent years. Gulf Related has announced that 50% of Al Maryah Central has already been leased by major retail groups such as Al Tayer, Chalhoub, Majid Al Futtaim Group and Dubai Holding and is now expected to open in August 2018. On the other hand, Reem Mall has secured a deal with Landmark Group which will occupy approximately 19,000 sq m within Reem Mall.
Average line store rents within well-located malls on Abu Dhabi Island remained stable at AED 3,000 per sq m p.a. Average line store rents within malls off Abu Dhabi Island also remained stable at AED 1,860 per sq m p.a.
Hotel: Abu Dhabi's hotel performance remained under pressure over the first eight months of the year.
ADRs declined by 10% in year-to (YT) August 2016 figures when compared to the same period last year. City wide ADRs stand at $121 in YT August data.
Overall occupancy rates stand just slightly below to their YT August 2015 levels at 70% (-2.3 ppt). As a result, RevPAR lost 12% to reach $85 over the first eight months of the year.
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.
Hotel clock reflects the movement of RevPAR.
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