Gradual growth would serve Abu Dhabi better than boom and bust
There were few things to get excited about in terms of news from Cityscape Abu Dhabi this week, but ultimately this is no bad thing.
Aldar’s announcement of its first new major schemes to launch in three years was probably the biggest in terms of scale.
Bloom Properties starting on site at Abu Dhabi Marina was another sign of progress in a residential market that has shown some healthy signs of improvement.
Prices have climbed by more than 27% since the first quarter of 2013, according to a report released last week by Jones Lang LaSalle.
However, the recovery has been limited to certain areas – largely newer developments in investment zones – and has been helped by a dollop of government intervention through the requirement that employees of state-owned firms live in the Emirate to receive housing allowances, alongside the removal of a rent cap.
Gurjit Singh, chief development officer, Aldar Properties, said there has been a trend for people to move out from older stock in the city centre to new schemes in investment zones. He added that most units handed over recently have been from older or delayed schemes.
“There has been very little new construction,” he said.
Yet even Aldar’s re-entry into the market has been measured – 200 units on one project, 500 on another, and 143 plots on the third.
This is a sensible approach. There are still plenty of vacant apartments within the city itself, although some of this stock is badly in need of repair or replacement.
The same dynamics apply to the office market, but underlying conditions there are much worse.
Rents for prime office buildings remain stagnant and are way below 2008 peaks.
With around 37% of office space remaining empty, the chances of landlords being able to charge any more – or of developers deciding to start on new builds – are still some way off.
There are broader reasons for this, which are largely due to the nature of Abu Dhabi’s economy. Most of the occupiers who are taking new space are often firms with government links, and the overseas enterprises setting up in the city generally don’t need huge floorplates for thousands of staff as in a global economy they often share work with bases elsewhere.
There is also still a relative lack of indigenous SMEs in the city, and although efforts are being made by Mubadala and others to grow high-value sectors such as aviation, manufacturing and pharmaceuticals, these will take a lot of time, money and effort (as well as some luck) to become established.
Yet there is absolutely no need why the capital should feel the need to embark on another building boom. The plans that have been put forward for the development of the city by the Urban Planning Council to 2030 are just that – long-term goals.
And surely it’s better to finance and support the sensible, organic growth of certain sectors than it is to have over-optimistic cycles of booms and busts?
If the past few years have proved anything, it is that if you build it, they don’t always come.