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Property Insight from Abu Dhabi:
Q1 2009 Market Review
By Matt Green, Associate Director – Research & Consultancy, CB Richard Ellis Middle East
Overview
- Despite current economic challenges, Abu Dhabi continues to perform, mainly due to undersupply of accommodation across all sectors
- While a small number of developments have been delayed, the Emirate continues to demonstrate commitment to large-scale projects such as Sa’adiyat Island, Al Sowwah, Reem Island and Yas Island along with Masdar (the new sustainable city development).
- Construction costs down 30% over last quarter – welcome news to developers as they push towards affordable housing units (meaning: middle income housing) whereby any drop in costs improve profit margin
- Multi-national corporate occupiers are less active, creating less pressure on the office leasing market.
- Not surprising considering the pressing economic conditions faced globally
Office Market
- Previous aggressive expansion by international firms, coupled with the lack of office supply pushed rental levels to unprecedented highs: Q3 2008 – 465AED/sqft/annum
- However, the present economic turmoil has forced local and international occupiers alike to review expansion plans. Rental fluctuations are shown in the following graph:
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- Overall, office sector witnessed lower leasing activity and rental decreases during the quarter from previous highs experienced during 2008.
- Currently there is around 1.8m sq/m of office space in AD and due to be increased by 2m sq/m over next 3-4 years.
- However, in the meantime, supply remains constricted and rental levels affected only to a small degree as compared to markets elsewhere.
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Office Market
Size |
1.85 million m²
973,410 m² CBD |
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Annual Prime Rents (m²) |
AED 3,200 – 3,500 |
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Lease Structure |
Typically three years, with longer lease terms becoming more popular. |
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Deposit |
Generally 1 -3 month deposit; rent paid yearly in advance. |
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Service Charge |
Typically 10 - 15% of annual rent |
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Agency Sales and Letting Fees |
Sales: 2% of capital paid by each party
Rental: 5-10% of one years rent |
Residential Market
- Lack of transparent transactional data makes it difficult to accurately gauge changes in rental and sales data.
- During 2008 – AD real estate growth was fuelled by same speculation and irrational exuberance that characterized the meteoric rise of Dubai’s property prices.
- However, during Q1 2009, residential sale prices have been affected by transactional gridlock and demand for off-plan sales is virtually non-existent in some instances.
- Distressed sales have been occurring but a natural floor price exists.
- In relation to off-plan, with HSBC’s and Barclays announcement of relaxing lending, we expect this may inject some much needed liquidity into the capital markets.
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Abu Dhabi Rental Rates for Residential Apartments, Q1 2009 |
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Unit Type Unit type |
Q1 2009 |
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Studio |
75,000 – 95,000 |
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One Bedroom |
130,000 – 160,000 |
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Two Bedroom |
175,000 – 250,000 |
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Three Bedroom |
250,000 –300,000 |
· During the quarter, overall villa rental prices decreased between 5-15%.
Outlook
- Good occupier demand will ensure that prices remain relatively stable in the face of current economic crisis.
- Positive indicators include tourism numbers, relaxation in bank lending criteria for residential and off-plan sales and minor price corrections.
- A reduction in transaction volumes will enable developers and their agents much needed time to reassess properties with a view to maximising design quality.
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