Rental stability in Abu Dhabi’s office market has given way to a widespread softening of rents as companies continue to cut back on space amid slower economic growth, according to a new report.
Cluttons' Abu Dhabi Property Market Outlook for Spring 2017 said that during Q4 2016, prime (AED1,850 psm), secondary (AED1,050 psm) and tertiary (AED750 psm) rents all declined by AED50 per sq m.
The report said the cascading impact of economic fragility in the form of a wide scale reduction in requirements and enquiries has contributed to weaker rents across the board.
Cluttons’ research showed that the liquidity squeeze faced by the public sector as a result of the fall in oil revenues has resulted in the cancellation, or delay, of a multitude of high profile projects across Abu Dhabi.
As a result, a number of businesses reliant on public sector spending are being forced out of the market due to a lack of lucrative contracts, which is adding to the diminished number of enquiries and requirements.
Edward Carnegy, head of Cluttons Abu Dhabi, said: “The city’s Grade A market, which had been relatively well insulated to the downturn previously, is beginning to show cracks, with rents in most prime buildings dipping back throughout 2016.
"Some landlords have begun to respond reactively to the softening conditions by increasingly offering rent free incentives and being open to negotiating headline rents, depending on the covenant strength of potential occupiers."
Faisal Durrani, head of research at Cluttons, added: “Clearly the rising vacancy rates and falling rents are creating an excellent opportunity for occupiers to cherry pick from locations they may have previously been priced out of, whilst also remaining firmly in the driving seat during rent negotiations."
He said rent corrections of between 5-10 percent are likely across the board by the end of 2017 and the market’s performance will remain hinged on the ability of the economy to shake off the drag generated by the low oil price environment.
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