Selective sub-markets in Abu Dhabi continue to recover
Jones Lang LaSalle, a real estate investment and advisory firm, has released its second quarter (Q2) 2013 Abu Dhabi Market Overview report covering the office, residential, retail and hospitality market segments, highlighting that market recovery which commenced in Q1 has continued throughout Q2.
Commenting on the report, David Dudley, Regional Director and Head of Abu Dhabi office at Jones Lang LaSalle said: “The first half of 2013 has been encouraging for the recovery of Abu Dhabi’s real estate markets. Prime office and residential rents have stabilised. Retail and hospitality sectors saw improved performance, and prime residential prices continued to rise during Q2 2013.”
The report highlights:
Overall real estate markets remain in over-supply, with additional new supply still in the pipeline leading to further increases to market-wide vacancy rates. However, there continues to be a significant distinction between high grade and low grade product – with market recovery occurring for prime real estate as performance of lower grade stock continues to decline.
During the first half of 2013, there has been an increased volume of residential sales transactions and price growth for prime product. Prime residential sales prices increased by 5% during Q2, following an 8% increase during the first quarter. A key source of purchaser demand has been regional investors attracted by the UAE’s ‘safe haven’ status following political unrest in the wider region. Other demand drivers include Abu Dhabi being at a time lag to market recovery in Dubai and, as government progresses its major economic development and city building initiatives, this has led to increased job stability and liquidity.
During Q2 2013 prime residential rents remained stable, following 8% growth during the first quarter. This can partly be attributed to the government regulations to reduce the level of commuting from Dubai, together with government economic development initiatives leading to further job growth. In addition, as new residential districts within master-planned areas obtain better amenities and achieve critical mass, this is leading to rental premiums for higher quality product. Rents in secondary quality residential stock have continued to fall.
The overall office market remains over-supplied, pending further progress with government economic development initiatives to diversify the economy and generate new jobs. However, prime office rents have started to stabilize, with prime office rents having remained stable the last four quarters.
For the hospitality sector, the positive impact of increased visitor arrivals has been offset by the significant recent increases in hotel supply. While occupancy levels increased by 8% during the first five months of 2013 average daily rates have continued to remain under pressure, declining by 2%. Due to the positive growth in occupancies, RevPAR levels in the Year to May 2013 have experienced an increase of nearly 11% compared to the same period last year.
Commenting further on the report, David Dudley said: “While it is encouraging to see the market moving upwards again, it is important to note that these improvements do not represent a market-wide recovery, but relate to selected high quality developments – with performance continuing to diverge between high grade and low grade product. However, this is certainly positive news for the market, indicating the first signs of recovery and a maturing market. The product that will perform the best is that which is functionally designed, well located, well managed and most aligned to end-user requirements.
“Over recent years the Government has made major moves to consolidate supply and re-prioritise its spending initiatives ahead of the next upswing. The medium term prospects for Abu Dhabi are therefore very strong: the Government remains committed to investing its substantial revenue surpluses into economic development and major city building initiatives which will continue to drive employment growth and real estate demand.”