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Tue 12 Dec 2017 01:28 PM

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Abu Dhabi's prime office rents fall as market 'stagnates'

New Cluttons report says rents in the UAE capital are set to drop by up to 10% over the past year

Abu Dhabi's prime office rents fall as market 'stagnates'

Prolonged economic headwinds has seen Abu Dhabi’s real estate market continuing to stagnate during 2017, with the majority of sale and lease activity driven by affordability and incentives being offered by landlords and developers, according to Cluttons.

Weaker economic growth has taken a toll on the hydrocarbon sector in particular, which has been a key driver of demand in the residential and commercial markets in the emirate historically, the consultancy said on Tuesday.

Faisal Durrani, head of research at Cluttons said: “The nervousness we have been reporting on for almost three years is well entrenched in the market at present.

“Saying that, we are seeing some positives emerge that may help to boost economic growth, including the recent announcement by ADNOC to invest $109 billion in its gas downstream growth strategy over the next 5 years.

"This will likely filter through to the UAE capital’s real estate market in the form of fresh demand for residential and commercial property. However, in the short term we anticipate that both tenants and buyers will continue to err on the side of caution and activity will continue to be driven by affordability and favourable payment terms offered by landlords and developers.”

Cluttons Winter 2017/18 Abu Dhabi Property Market Outlook said subdued growth in the oil and gas sector continues to undermine overall activity in the office market.

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.

While some are looking to consolidate, others are attempting to upgrade from older offices.

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

“With increasing vacancy across the market, the majority of landlords are seeking to retain existing tenants where possible, typically agreeing improved terms at renewal. New tenants are being offered a range of increased incentives to win them into buildings, such as rent-free periods and payment terms. We’ve also seen a small number of landlords fitting out premises for tenants, removing a substantial barrier for relocation.”

Cluttons’ report also highlights the reduction of headline rents across the city. Even the top-tier Grade A buildings have seen rents weaken, with the Aldar HQ building (-2.8 percent) and International Tower (-3 percent) both registering falls in headline rents in Q3.

Cluttons said it expects  office rents to remain under pressure across Abu Dhabi during 2017 and 2018.

Durrani said: “Prime office rents appear to be on track to end the year roughly 5-10 percent down on this time last year and it is our view that a similar pattern is likely during 2018.”