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JLL: Abu Dhabi real estate market declines in Q2

The oil sector comprises half of Abu Dhabi’s GDP therefore, the reduced oil price and the announcement by ADNOC to cut 5,000 jobs by year-end, has had a major impact on employment growth

The reduced oil price has resulted in a continued pause in government spending on economic diversification.
The reduced oil price has resulted in a continued pause in government spending on economic diversification.

After 18 months of relatively stable conditions with the lack of demand growth being matched by minimal growth in supply, the Abu Dhabi real estate market is now starting to show initial signs of declining performance, according to JLL.

In its second quarter (Q2 2016) Abu Dhabi Real Estate Overview report, David Dudley, international director and head of Abu Dhabi Office, commented: “Demand has been weak since the decline in oil prices at the end of 2014 – impacting the oil sector, government spending and general sentiment. However, while demand took a big hit, annual supply completions have been at an all-time low, leading to relatively stable market conditions over the last 18 months – characterised by low vacancy rates in high quality stock and prime rents generally remaining stable across each asset class.

“During Q2 2016, we have started to see the first signs of a downward trend as the decline in the oil sector, reduced government spending and weak sentiment continues. While supply remains stable, the reduction in demand has now started to cause vacancy rates to nudge upwards, indicating we have now reached a tipping point with rents declining for the first time in three years.”

The report said that the oil sector comprises half of Abu Dhabi’s GDP therefore, the reduced oil price and the announcement by ADNOC that it plans to cut 5,000 jobs by year-end, has had a major impact on GDP and employment growth.

The reduced oil price has also resulted in a continued pause in government spending on economic diversification and infrastructure and job cuts in the government sector, impacting the other half of the economy.

Recent announcements of mergers between NBAD / FGB and Mubadala / IPIC may lead to further rationalisation.

Dudley added: “We expect the impact of these job cuts and reduced incomes to become more pronounced over the summer, as some people look to either leave or downsize. This will push vacancy rates up further and cause rents to decline at a time-lag but given the numbers we are talking about relative to the overall size of the market, this is expected to be a soft correction rather than a sharp decline.”

He continued: “While we commend the government's prudent approach to re-prioritising spending in the current period of low oil prices, we hope that the tap is not turned off for too long or Abu Dhabi will lose the momentum it has built and we could enter a more damaging downward spiral. The extent to which a down turn can be mitigated depends on the return of domestic government spending in spite of a reduction in oil revenues.”

He commented further: “The good news is that government remains committed to the 2030 Vision and has recently announced its priority projects to 2020. While we are going through a period of weaker demand, demand growth continues from projects commenced while oil prices were high, new projects are in the pipeline and supply growth remains suppressed. However job cuts and reduced investment is expected to result in further rental decline in the second half of 2016.”

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