Q1 2016 Abu Dhabi Real Estate Market Overview by JLL

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SECTOR SUMMARY HIGHLIGHTS – ABU DHABI:

Office:
· Total office stock reached approximately 3.4 million sq m GLA during the first quarter of 2016, with the only delivery being Al Maryah Tower on Al Maryah Island adding approximately 43,700 sq m of office GLA. An additional 286,000 sq m GLA is expected to be delivered by the end of 2016.

· Demand for office space has reduced due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slow-down in government spending. Large-scale requirements continue to be driven by the government sector and state-owned enterprises with the bulk of private sector demand focused on smaller office suites.

· The office market wide vacancy rate currently stands at 20%, however the vacancy rate is expected to increase due to the delivery of further office space and the slowdown in demand growth

· In spite of weak demand, average Grade A office rents remained stable at AED 1,850 per sq m due to limited vacancy within high grade stock. However, Grade B office rents decreased by 5% in Q1 2016 averaging 1,120 per sq m from 1,180 per sq m in Q4 2015. This is mainly due to the slowdown in demand growth following the decline in oil prices, government spending and surplus Grade B office stock.

· David Dudley commented “The office market has been the most affected by the decline in oil price and government spending. There are signs of oil companies and government entities reducing headcount and office space requirements. However this is mitigated by minimal increases to new speculative supply – the majority of new office buildings are either pre-committed to end users or are in secondary locations.

· He added “While we are going through a period of weaker demand, Grade A Office Rents have generally remained stable, with limited vacancy in high quality buildings. Market-wide vacancy will continue to increase as further office space comes on stream during a period of weak demand. However, Grade A vacancy remains relatively low and therefore we expect Grade A rents to be broadly upheld”.

Residential:
· A total of 719 units were delivered in Abu Dhabi during the first quarter of 2016 bringing the total residential stock to approximately 246,000 units. Deliveries include Amwaj 2 in Al Raha Beach, Al Falahi Tower in Danet Abu Dhabi and The Wave Tower on Reem Island.

· Approximately 4,000 units are expected to enter the market by the end of 2016 mainly within Danet Abu Dhabi, Reem Island and Saadiyat Island.

· Prime rents have remained stable this quarter (averaging AED 163,000 p.a. for 2 bed apartments within investment areas) due to relatively low vacancy in quality schemes. Sales prices have also remained stable at 16,000 per sq m – however the reduction in transaction volumes may put further pressure on prices this year.

· David Dudley commented “For the residential rental market, while demand growth has reduced, this is offset by a major reduction in annual supply completions leading to relatively limited vacancy in high quality schemes. Annual supply completions historically averaged 10,000 units per annum – however current supply completions are at a fraction of that.”

· He added “During 2016, we expect residential rents to remain relatively stable in some sub-sectors, with a modest decline in others – but given relatively tight vacancy rates in quality schemes and limited supply completions, we are not expecting a dramatic fall in prime rents. In the event that the current pause in government spending remains for a while longer we could see more significant downward movement of rents.

· Commenting on the residential sales market “Abu Dhabi’s residential sales market has historically been dominated by investors speculating on price growth with a much smaller proportion of the buyer market representing yield investors and owner occupiers. Over recent years, prime residential prices went up at 25% per annum which was unsustainable. As the market softened during 2015, prices have remained stable but transaction volumes have dropped significantly. During 2016, we expect transaction volumes to remain low which may start to put pressure on sales prices.”

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