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Increasingly tenant favourable conditions will enhance the value proposition of real estate and encourage business growth in the capital according to the latest City Profile released by JLL MENA.
Abu Dhabi’s real estate markets are entering a new phase marked by enhanced supply quality and increasingly value-conscious demand, which will reward well-built and well maintained stock as rents continue to decline. Meanwhile, improved affordability will encourage business and employment growth. In the short term, oversupply will expand as major projects, launched during the boom period, approach completion. Although this is compounded by a short term demand lull, the resulting rise in vacancy and corresponding rent declines will improve Abu Dhabi’s competitiveness, create a tenant favourable market, and stimulate leasing activity from quality conscious occupiers upgrading to new facilities. On-going government investment in strategic infrastructure projects and economic diversification supported by the wealth of sovereign and private capital will drive forward Abu Dhabi’s emergence as an important regional and global hub.
David Dudley, Head of
Abu Dhabi Office, JLL MENA said,
“The market’s long term performance depends on Abu Dhabi’s ability to capitalise on the current market correction by improving transparency and reforming regulation. Combined with economic diversification that fosters innovation and entrepreneurship, these measures will enable the market to transition from a speculation-driven industry to a stable long term investment model, generating sustainable residential and commercial demand. At JLL MENA, we believe this is achievable and we maintain a strong commitment to and active presence in Abu Dhabi.”
Major market highlights include:
Office: Currently, Abu Dhabi has only 2.3 million square metres of international quality, professionally managed Grade A space in the metropolitan area, equivalent to 11% of total supply. By the end of 2013, total Grade A and B supply is expected to increase to 3.5 million square metres, with a number of major projects due for delivery in 2011. Expanding supply will address the existing pent up demand for high quality space. Although this will soon surpass demand and will result in significant vacancy, the subsequent rent declines and increased options will create a tenant favourable market and encourage relocation by companies looking to upgrade. Well designed and strategically located offices with good accessibility and functionality will maintain the strongest rents, widening the rent gap between Grade A and B space during 2011.
David Dudley adds: “New regulation prohibiting commercial use of residential units and villas will consolidate some demand, but this will only have a marginal impact on total oversupply. However, the real story is about the expanding options available and affordable rents that create value for tenants. JLL MENA continues to be a dominant player in the Abu Dhabi market and we recently handled the largest private-sector commercial leasing deal for many years in Abu Dhabi, which was the acquisition of over 20,000 sq m by Technip, the French oil services firm. As affordability and the value proposition of real estate improves, we anticipate more leasing activity.”
Residential: 2011 will be marked by improved affordability as supply of high-end apartments increases, pushing rents down. Similar to the office market, this will generate upgrading demand, which will increase vacancy in mid- to low-end stock; meanwhile vacancy in new higher-end stock will rise due to supply expansion. Not only will this make Abu Dhabi more attractive for residents, potentially drawing back commuters from Dubai, but it also reduces employment costs for companies and encourages job growth.
Retail: In Abu Dhabi, there is a lingering shortage of quality retail space. During 2011/12, the supply pipeline is dominated by regional malls, although a significant proportion will come from community centres. The scale of new retail supply will increase market competition and soften rents, which will highlight the pivotal role of quality in widening the rent gap between strongly and poorly performing centres.
Hotels: The sizeable supply pipeline will put pressure on occupancy rates through 2011 and into 2012, but this sector will continue to grow. In Q1 2011, hotel performance temporarily stabilised, reflecting limited supply expansion in the quarter, but this will start to change in the coming quarters. Although the business segment will dominate demand through 2012, the strongest potential for medium to long term growth is through expanding the leisure tourism segment, which is supported by recent promotional initiatives in line with the Government’s 2030 Vision.
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