Abu Dhabi Office Market

Key Takeaways

Supply

• Total office stock across the Abu Dhabi Metropolitan area is approximately 2 million sq m.

• An additional 1.2 million sq m of office supply is expected to enter the market before the end of 2012, over 50% of which will be within large-scale mixed use projects and tower buildings.

• Currently there is a shortage of Grade A office space and a significant proportion of new supply will not meet international Grade A standards.

Demand

• Office demand is dominated by government entities and state-owned corporates, many of which will satisfy their accommodation requirements as owner occupiers of purpose-built office buildings.

• Dominant sectors include government, financial services and real estate (predominantly local), professional services and technology (international) and oil and gas (local and international).

• While there is latent demand from occupiers upgrading their office space and increasing their Abu Dhabi presence, the office market is expected to enter into over-supply by the end of 2010.

Performance

• Office vacancy rates reached 8% during Q2 2010 and are expected to increase over the coming years as new supply continues to enter the market.

• Office rents: Y-o-Y decrease of 27% and Q-o-Q decrease of 12%. Average Grade A is AED 2,200 / sq m. Grade B rentals are falling more rapidly with current average rentals below AED 1,700 / sq m.

• Newly commenced standalone office buildings are able to benefit from lower construction costs and can therefore justify lower rental levels, resulting in a two-tier market emerging.

Outlook

• Office rents are expected to continue to fall in-line with increasing vacancies creating opportunities for tenants to upgrade their space without increasing costs.

• Abu Dhabi’s office market performance will continue to be affected by market conditions in Dubai due to an abundance of supply, lower property rentals and more developed urban infrastructure in Dubai.

• Rents in Grade A and B buildings are expected to fall further during Q3 2010 and the gap between Grade A and B rents is expected to widen. Decreased rentals will have a positive impact on demand.

Current & Future Office Supply

• Total office stock at the end of Q2 2010 is approximately 2 million sq m in the Abu Dhabi Metropolitan area.

• The completion of Aldar’s HQ building at Al Raha Beach makes up the majority of new stock entering the market in Q2 2010.

• Despite many developers scaling back or delaying their proposed developments – especially the more ambitious projects, total office stock is expected to reach 3.6 million sq m by the end of 2013.

Office Demand by Nationality & Sector

• Office demand is dominated by financial services (principally domestic banks and investors), government entities, professional service firms, oil and gas sectors and hi-tech / telecoms.

• New growth sectors will generally be accommodated in government-backed clusters while many of the government entities and state-owned enterprises will be owner occupiers of purpose built premises – reducing potential demand for speculative office buildings.

• There is an element of latent demand as occupiers upgrade their space in a ‘flight to quality’ and foreign firms increase their presence in Abu Dhabi.

                                      

Historic Rental Performance

• Grade A rents peaked in Q4 2008 at AED 3,800 per sq m per annum, and have dropped to an average of AED 2,200 per sq m per annum in Q2 2010.

• Average prime rents have declined 27% Y-on-Y and 12% between Q1 and Q2 2010.

• Rents for Grade B & C offices have declined by more than 15% between Q1 and Q2 2010.

Best Regards,

Tauqeer Ahmed