Abu Dhabi Market Highlights

• While developers have scaled back many projects, the additional supply entering the market has seen average rentals and sale prices decline in most sectors over 2010 as the market continues to adjust from the unsustainable levels of performance recorded during 2008 and 2009.
• Market conditions in Dubai continue to have a negative impact on Abu Dhabi due to the complex inter-relationship between the two markets. Other than selective relationship lending, liquidity remains tight and many developers are experiencing cash-flow issues.  
• Office market vacancies continue to increase as new supply comes on stream and will continue until economic development initiatives boost new demand. This is providing additional choice for tenants. Rental prices continue to decrease with the gap between Grade A and Grade B rentals widening.
• Limited supply entered the residential market in Q2 2010 and the market continues to experience an overall under-supply situation, particularly in the lower to mid-market segments. However, average rental prices continued to decline quarter on quarter with few sales transactions taking place.
• The retail market remains under supplied taking into account the spending power of the population and increasing tourism spend with more than 95% occupancy rates especially for high quality retail space. Rental rates have remained stable over the past three quarters.
• Supply continues to outpace demand in the hotel market. The corporate sector continues to dominate as Abu Dhabi continues to develop its tourism offerings. ADR and hotel occupancy rates face continued pressure especially within newer development areas such as Yas Island.
• The future outlook remains positive, driven by the weight of sovereign and private wealth combined with the government’s vision and commitment to strategic economic development initiatives to grow and diversify the economy.
• We expect the current slowdown to be relatively short-term. Markets such as Abu Dhabi tend to have short, sharp cycles and we believe that Abu Dhabi will bounce back quickly as investor confidence is restored and major government investment continues.
• The outlook for oil prices and productivity remain positive, driving GDP growth and generating revenue surpluses that can partially be re-invested into the economy.
• As investor and consumer confidence is restored, liquidity returns and the government’s economic development and other nation building initiatives take hold, Abu Dhabi’s market prospects will be favorable.
• In this increasingly competitive environment the key to success will be delivering high quality real estate that corresponds to end-user requirements and offering competitive lease terms to secure the very best anchor tenants.

Best Regards,

Tauqeer Ahmed