Abu Dhabi commercial property market predictions

By Bob Hird, Senior Director and Head of Investments, CB Richard Ellis

Development has been encouraged in Dubai more than Abu Dhabi, in both the residential and commercial sectors.

As of today, the total amount of existing commercial stock in Dubai is in the order of 4.1 million square metres, whereas Abu Dhabi amounts to less than half of this, at approximately 1.85 million square metres.

Further, non-GCC companies and individuals are only able to own freehold or long leasehold interests in properties in certain Investment Zones within the UAE - of which there are only three in Abu Dhabi, yet in excess of 20 in Dubai.

This has led to the emergence of Dubai as the leading commercial centre in the UAE (and arguably the GCC) over recent years, with its commercial rental rates reaching a peak in the order of Dhs6,000 per square metre pa by late 2008.

By comparison, Abu Dhabi's rents reached a peak of just below Dhs4,000 per square metre pa.

The current global economic downturn is having significant negative effects on both Dubai and Abu Dhabi's property markets, but most severely in Dubai.

Undoubtedly, Abu Dhabi's extensive oil reserves augurs well as a capital base to fund the future development of the emirate, whilst also being in a position to assist the other emirates, if and when required.

2009 prediction for Abu Dhabi

During Q2 and Q3 2009, as the effects of tight liquidity, low corporate and investor confidence and reduced commercial occupier demand are likely to continue, there will be continuing downward pressure on both commercial rents and capital values.

Paradoxically, however, low levels of currently available supply will maintain a degree of balance in the equation, although the rental trend will almost certainly be downwards.

As the year progresses, we are likely to witness the considered allocation of capital to major items of infrastructure and other key projects, to ensure that what is developed in the future, is done so in as efficient and sustainable a manner as possible. This is quite likely to lead to the scaling-down, deferring or cancellation of some currently planned projects.

Towards the end of the year and into 2010, assuming business confidence has improved and liquidity returned to the financial markets, demand to occupy office space will increase, justifying the commencement of new commercial developments.

2010 and beyond

Assuming global and UAE economic recovery continues throughout 2010 and into the future, Abu Dhabi will be well-placed to continue its expansion in a planned, sustainable and efficient manner.

The creation of Plan Abu Dhabi 2030 (the Urban Structure Framework Plan for the future development of Abu Dhabi through to the year 2030) provides an excellent platform for this expansion. The Plan includes such elements as; the Capital District (primarily Government offices), the CBD (financial centre), Saadiyat island (cultural and residential/leisure), Musaffah (industrial) and Al Suwwah Island (housing the new Stock Exchange).

As the Abu Dhabi commercial market continues to develop, it is most likely to polarise into two very different sectors:

Firstly, there will be new, quality developments, which have been designed and built to attract and retain the most discerning of corporate and government occupiers. Such developments will be well located, with efficient floor-plates, quality services and finishes and ample parking. They will be well-managed, including cost-efficient systems and full operating cost disclosure to tenants.

Secondly, there will be the older-style accommodation and poorer quality new units, containing none, or few, of the features of the former group. This quality of accommodation has been able to command relatively high levels of rental during the past 12-24 months, due primarily to the acute shortage of accommodation of any quality available in the market.

As available supply levels increase and tenants' bargaining positions improve, better quality tenants will graduate towards the better quality buildings, preferring to pay higher rentals if required, for a higher quality of accommodation and services. Lower quality buildings will not be able to attract or retain top quality tenants and will command commensurate lower rentals.

Overall, by virtue of its planned approach to future development, together with a strong financial platform based on its oil reserves, Abu Dhabi is well-placed to consolidate its position as a financial and cultural hub within the Middle East and world economies, once stability returns to the market.