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Wed 11 Apr 2018 02:20 PM

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Abu Dhabi office market continues to see downsizing pressures in Q1

Cluttons report says that while rents across prime office buildings held steady during Q1, deals are concluded below headline asking rates

Abu Dhabi office market continues to see downsizing pressures in Q1
(Dan Kitwood/Getty Images)

Abu Dhabi's office market continued to face pressures related to firms that are downsizing or consolidating operations in the first quarter of 2018, according to Cluttons.

Its Abu Dhabi Property Market Outlook report for Spring 2018 showed that while rents across the city's prime office buildings held steady during Q1, deals continue to be concluded below headline asking rates in many cases.

In secondary and tertiary buildings, rates have dropped by as much as 30-50 percent over the last two years, the report added.

Edward Carnegy, head of Cluttons Abu Dhabi, said: "In some cases, rents in tertiary buildings have fallen to nearly the same level as prime warehouses.

"However, these substantial drops do not accurately reflect market conditions and are a result of landlords holding out on rent reductions for extended periods of time, before being forced to make drastic adjustments due to increased vacancy as they chase the market down.

"We are aware of a number of instances where landlords are now also willing to cover agency fees. This is a seismic change in behaviour as up to 60-70 percent of landlords are now willing to do this, compared to almost none a few years ago. In addition to this, many are also willing to offer increased parking provisions, increased rent free periods, shorter leases with increased flexibility."

Overall, the Cluttons report highlights that medium term prospects are slightly more encouraging, with rising public sector spending expected to boost GDP growth, which in turn should aid in the return of more robust levels of occupier requirements.

However, this is unlikely to materialise for at least another 9-12 months, it said.

Faisal Durrani, head of research at Cluttons, said: "Until the market approaches that point, we expect further office rent drops of 5-10 percent on average, across the board, which we expect to continue underpinning the rising relocation activity we are seeing, after a couple of very quiet years.

"In parallel, occupiers from the banking and public sectors are testing the waters, attempting to capitalise on the softer rents; a clear indication that some are sensing the bottom of the current property cycle."

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