Abu Dhabi office market to face weak yields into 2018

Abu Dhabi’s office market has continued to face weak rental yields in 2017, a segment that is expected to remain under pressure in the coming year

The report highlights the reduction of headline rents across Abu Dhabi.
The report highlights the reduction of headline rents across Abu Dhabi.

Abu Dhabi’s office market has continued to face weak rental yields in 2017, a segment that is expected to remain under pressure in the coming year.

According to the Cluttons Winter 2017/18 Abu Dhabi Property Market Outlook report, the capital’s office market has seen declines of 5% to 10% over the course of the year, largely a result of continuing economic pressures due to oil prices.

The report also highlights the reduction of headline rents across the city, with top-tier Grade A buildings seeing rents weaken.

READAbu Dhabi residential market stagnant in 2017

For instance, the Aldar HQ building (-2.8%) and International Tower (-3%) both registered falls in headline rents in the third quarter.

The public sector on the other hand, which includes government departments and other quasi government entities, appears to be mobilising in response to the weak rents, with a range of requirements in the market.

Edward Carnegy, head of Cluttons Abu Dhabi, said: “We are seeing fairly significant churn from public sector and related entities, with at least 50,000sqm requirements currently in the market.

“This is attributable to various drivers including consolidation exercises, upgrading offices from older legacy locations and the availability of new office supply to enable such relocations.

“These factors are all framed by a requirement to cut cost and drive efficiency. Similarly, corporate occupiers are still consolidating, cost cutting and requiring increased lease flexibility.”

Though some occupiers are looking to consolidate, others are attempting to upgrade from older offices, according to the report.

Overall, Cluttons’ expectation is for office rents to remain under pressure across Abu Dhabi during 2017 and 2018.

“With increasing vacancy across the market, the majority of Landlords are seeking to retain existing tenants where possible, typically agreeing improved terms at renewal,” Carnegy added.

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