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Abu Dhabi’s office and retail rents have remained stable in Q3, according to JLL’s latest market summary.
While headline rents in prime retail and office projects remained relatively stable, both sectors moved further in favour of occupiers. Q3 also saw a further decline in residential and hospitality performance due to the continued reduction in market sentiment.
Office rents have remained stable in Q3 despite the decline in demand, as office supply remains stable with no major completions. However, the delivery of additional supply at a time of weaker demand is expected to place downward pressure on rents over the next 12 months, particularly in secondary buildings.
Retail rents have also remained stable in the better performing malls, despite a continued decline in retail spending during Q3. The market has been supported by the absence of further new supply but the stable rents disguise a softening in market conditions as mall operators are offering more extensive leasing incentives to maintain and attract retailers.
The hospitality market registered an 8% drop in ADRs and a 2% drop in occupancy levels compared to the same period last year. Consequently, RevPar declined by 11% in YT August 2017 compared to the same period last year. The final quarter of the year is traditionally a strong period for the Abu Dhabi hotel market and this trend will be enhanced by the opening of the Louvre museum in November in addition to the Grand Prix.
Sector summary highlights – Abu Dhabi
There are signs that mergers and consolidation could continue, with Eshraq Properties and Reem Investments being the latest to announce a potential merger that would create the second largest listed real estate developer in Abu Dhabi.
No major completions took place during Q3, with the total office stock remaining at approximately 3.5 million sq m GLA.
Headline rentals for both Grade A and Grade B office space have remained stable over the past 12 months (averaging AED 1,760 / sq m and AED 1,030 / sq m respectively). These headline rents do however underestimate the extent to which the market has shifted in favour of tenants over the past year.
While transaction volumes have decreased, residential sales continue. Aldar's Water's Edge scheme on Yas Island was well received at Cityscape Global, setting a new benchmark for good quality waterfront housing at a lower price point.
Approximately 550 units were delivered in Q3, bringing the total residential stock to approximately 250,000 units. Deliveries included Al Jazeera Tower on the Corniche, the C34 residential tower in Saraya on the Corniche and the Abu Dhabi Marina Development in Al Bateen.
A further 3,000 residential units are currently scheduled to enter the market by the end of 2017, mainly within Reem Island, Saadiyat Island and Saraya.
The residential market in Abu Dhabi continued to face downward pressure, with rents and prices registering further declines on both a quarterly and an annual basis.
Stable rents in higher quality malls and positive leasing campaigns for upcoming malls somewhat hide the softening of the retail market with mall operators offering retailers increased incentives. Mall operators have also been undertaking promotions and other campaigns in an attempt to maintain footfall and sales levels.
No major completions took place during Q3, with total retail stock remaining at approximately 2.6 million sq m. Approximately 54,000 sq m of retail GLA is expected to be delivered by the end of 2017, primarily within mixed used schemes.
Average line store rents within well-located malls on Abu Dhabi Island remained stable at AED 3,000 sq m p.a. Average line store rents within malls off Abu Dhabi Island also remained stable at AED 1,860 sq m p.a.
The opening of the Louvre Museum in November along with ADTCA's continued efforts to promote Abu Dhabi are expected to increase demand throughout the rest of the year, but the hotel market is expected to witness further downward pressure.
No major completions took place during Q3, with the total hospitality stock remaining at approximately 21,200 rooms. Approximately 700 keys remain to be delivered by the end of 2017 including the Grand Hyatt Abu Dhabi Hotel & Residences (Emirates Pearl) and Rotana Saadiyat Resort, both falling within the 5-star segment.
The third quarter of 2017 witnessed a decline in both occupancy levels and ADRs compared to the same period last year.
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