With the price of oil dropping from $108 a barrel in June 2014, to under $50 a barrel in January 2015, lower oil prices are beginning to impact Abu Dhabi's commercial real estate market.
Witnessing a marginal slowdown in the number of enquiries in H2, (which may be due to companies reviewing the impact in falling oil prices), nearly 80% of enquiries were between 100 square meters and 500 square meters. The overall effect on market rents over 2014 was minimal, but Abu Dhabi could witness further improvements in headline rents, as little Prime or Grade A supply enters the market. Take up during 2014 was still dominated by the oil & gas (16%) and government sectors (15%), which positively impacted the absorption of new accommodation in Abu Dhabi. The Leisure & Hospitality sector witnessed an increase in the number of enquires, which reflects the government's efforts in diversifying the economy and growing this sector.
However, Abu Dhabi's commercial property sector should be able to shrug off such concerns as the region's medium to long-term prospects remain strong in addition to a limited office supply pipeline. This has led to vacancy rates dropping for Prime and Grade A offices in the Capital to 26%.
Matthew Dadd, Abu Dhabi commercial leasing, Knight Frank, commented; "The market dynamics continue to change in Abu Dhabi as the city expands further from the main island. Regardless of economic trends, Abu Dhabi real estate continues to offer a good depth and breadth of opportunities for occupiers, although there is a limited pipeline of new office accommodation which will impact the market in the coming years''.
Abu Dhabi Office Market Highlights
Prime office rents edged up in Abu Dhabi in H2 2014 to AED 1,800 per sq m, whilst rental values for Grade A shell and core office space remained steady at AED 1,200 per sq m
Market sentiment through the diversification of the economy continues to improve with mega projects such as Khalifa Port, registering a growth rate of 24% from January to September 2014, compared to the corresponding period in 2013.
With the Midfield terminal due to be completed on the 7th July 2017, this will be expected to positively impact the economy further, in both trade and tourism.
Abu Dhabi Global Market (ADGM), the newly formed international financial centre in Abu Dhabi, announced that it has signed a 50-year lease for the Financial Building, Al Maryah Island which is owned by a Mubadala subsidiary.
The ADGM will be responsible for establishing a legal jurisdiction, registering entities (within the freezone) and regulating all financial services activity on the island in line with international standards and under English Common Law.