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Office rents in the capital drop significantly
29 Jul 2010
Office rents fell 12 per cent in Q2 as vacancies rise in the capital, according to the latest report by Jones Lang LaSalle.
The Abu Dhabi Real Estate Market Overview states that the new supply in the pipeline and the impact of falling rents and prices in Dubai are causing rents and prices in Abu Dhabi to fall from their unsustainable highs of the boom years.
The reports adds that this is particularly true of the office market, upper segments of residential rental market and hotels sector.
The current state of the market, means there are now many opportunities for office tenants to upgrade to higher quality premises without increasing their occupancy costs.
According to the report, the total office stock across the Abu Dhabi Metropolitan area is approximately two million sq m and an additional 1.2 million sq m of office supply is expected to enter the market before the end of 2012. Office vacancy rates reached 8 per cent during Q2 2010 and are expected increase.
The report says: “In this increasingly competitive environment, the key to success will be delivering high quality real estate on competitive terms to correspond to end-user requirements and secure pre-lets.”
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 Q2 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.
The report added that 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.
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