Office rentals in Abu Dhabi expected to decline

Grade A and B office rents in Abu Dhabi are expected to fall by at least 10%-15%, a magnitude similar to 2016 rental drops

This image is for representation purposes only.
This image is for representation purposes only.

Office space rentals in Abu Dhabi are expected to drop further in 2017, as mismatch between demand and supply continues.

“In the wake of continued contraction in demand anticipated over the next few quarters, grade A and B office rents in Abu Dhabi are expected to fall by at least 10%-15%, a magnitude similar to 2016 rental drops,” predicts real estate consultant, Core Savills.

However, despite lower demand from blue chip/large corporates, the current lack of prime /grade A+ office stock, intensified by growing grade B stock is expected to keep prime office rents relatively resilient to further drops,” the report pointed out.

David Godchaux, CEO of Core Savills, said: “There is a broad mismatch between demand and supply, particularly in the grade A and B markets.

“There is a relatively active demand for smaller offices with spatial requirements ranging between 55.7-185.8m2, however, the availability of such smaller units remains limited, with many landlords resisting floor division further, despite continued vacancy.”

“New local enquiry levels are concentrated on the footprint optimisation/ consolidation while international first phase expansions have been largely limited.

“Notably, expansion requirements are coming from Dubai-based firms who are looking to expand their presence in Abu Dhabi given the softening rents.

“These enquiries are concentrated within the healthcare, budget F&B, accounting, legal and other service based industries,” detailed the report.

“A relative spike in activity levels may be triggered in vacant stock if landlords cater to the mismatched demand from smaller spatial requirements, by splitting offices and offering competitive rental rates to uplift occupancy levels.” added Godchaux.

Al Maraya Island is expected to attract steady interest from corporate office occupiers for its premium commercial office facilities, due to the evident lack of similar grade buildings in the market.

He noted: “An underlying future demand for prime offices which is forming and currently not being met by the supply of premium grade stock, is expected to favour office absorption in Al Maraya Island.

“As this underlying demand is progressively absorbed, some occupiers shift from older grade B to new grade A offices, additional downward pressure will mechanically impact grade B occupancies and rental levels.”

Godchaux further said: “The ongoing development of free zones and ports are actively diversifying revenue Abu Dhabi’s streams while master residential communities are coming at par to house these economic clusters.

“The fact that emirate is comfortable with hydrocarbon reserves to fuel its future growth adds to the positive future momentum.

“This coupled with the increased activity on mergers and acquisitions in the oil and gas and financial services sectors translates towards integrated efficiency,” added Godchaux.

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