Cluttons: Stabilisation in the Abu Dhabi real estate market as diversification takes place

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  • IMF revises growth projection for Abu Dhabi’s economy to 5.5% for 2012 
  • Opening of Khalifa Port drives new regional business into Abu Dhabi’s industrial sector
  • Strong demand for high end retail space from international designer luxury brands
  • Both rent and capital values of apartments have dropped 6.8% since Q3 2011
abu dhabi
Aerial view of Abu Dhabi, the capital city of the UAE. Photo – Faisal Saeed Dama

Abu Dhabi, UAE: 21 October 2012 Cluttons, the real estate specialist which has enjoyed a dedicated Middle Eastern presence since 1976, today announces its Q3 market report for Abu Dhabi’s property market 2012.

The IMF recently reviewed its growth projection for the Abu Dhabi economy in 2012 from 4.2% to 5.5%.  This could well be a positive reflection of the efforts of the Emirate to diversify into a more non-oil based economy, along with the government’s continued investment in major public construction projects including Khalifa Port, which opened in September, and rapid development of projects in Saddiyat, Al Reem and Yas Islands. The Abu Dhabi government has also focussed on leisure and retail as a means to start drawing attention away from neighbouring Dubai.

In the industrial sector, the official opening of the AED 26.2 billion (USD 7 billion) Khalifa Port in September is set to change the industrial landscape in the region.  Khalifa Port’s container terminal has a capacity of 2.5 million container units a year, with an additional 12 million tonnes of general cargo.  The Khalifa Port acts as the gateway for Kizad Industrial Zone Abu Dhabi (KIZAD), with the objective of the area to support the growth of the Abu Dhabi economy under the 2030 economic vision. Forty companies have reportedly signed on long-term lease agreements for Free Zone and Non Free Zone land plots.

In addition, warehouse units at Skycity, Waha Land and Abu Dhabi Airports Company have also been completed, bringing further supply on to the market.  Across the capital industrial rents have remained stable since Q1 2012 at AED 46 (USD 13) per square metre per annum.

The retail market is also due to change dramatically over the next 12 to 18 months as two major developments, Yas Mall and Deerfields Mall, are released along with the extension of Al Wahda mall and the release of Emporium at Central Market, bringing 300,000 square metres of new retail space to market by the end of 2012. The two developments which are presently competing directly for international brand interest are Etihad Towers and Sowwah Square, the former of which has secured Tom Ford, Chloe and the first Paul Café in the capital and is 80% pre-let. Currently, prime mall space is achieving top rental rates of AED 3,500 to 4,000 (USD 953 to 1000) per square metre per annum as opposed to an average of AED 2,800 (USD 762) per square metre per annum in most retail spaces.

Office rental levels have remained static over the past 12 months, with net prime rents achieving AED 1,800 (USD 490) per square metre per annum. Headline rents remain higher but landlords are offering rent free incentives in the established Grade A developments of as much as 6-9 months for a five year lease.  Again in this sector, Etihad Towers and Sowwah Square are both leading well in a still suppressed market.

The residential market has remained stagnant in 2012. Approximately 3,000 residential units have been released into the market in Q3 2012, most of which represent apartment developments. Take up of projects such as TDIC’s St Regis apartments on Saadiyat Island have proved popular, highlighting demand for well-planned developments offering a community lifestyle with high-end facilities. However, in general the addition of stock to an already lethargic market has caused rental and capital values to falter.  Capital values of apartments have fallen some 6.8% since Q3 2011 and the villa market to a lesser extent down 3%. The release of an additional release of 38,000 units by 2014 undoubtedly will increase the competiveness of the market and force landlords to offer lower rents and more flexible contact terms.

Cluttons foresees that in 2013 industrial rents will remain stable across Abu Dhabi and that further opportunities and growth will result from the launch of KIZAD. Retail and office space prices will depend on the development; with tailored, well-serviced buildings maintaining their prices while others may stagnate or soften.  Residential rental values on the other hand are likely to soften further as a result of the huge increase of stock coming online in the next two years.

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