Despite Low Oil Prices, Abu Dhabi Prime Office Rents Rise
With oil prices at multi-decade lows, Abu Dhabi's on-going drive for economic diversification is helping to underpin growth in the emirate's commercial property market sector.
According to Cluttons, Abu Dhabi's commercial office market demand remained lop-sided and centered on prime office stock, which is still in short supply. Demand however is stable, but robust, which is translating in to strong upward pressure on Grade A rents across the city.
With falling oil prices likely to negatively impact the short-medium term rate of office occupancy and the subsequent level of job creation, the Abu Dhabi government continues to focus its efforts on diversifying the economy further by reducing dependence on the hydrocarbon sector, which remains stubbornly fixed around the 50% mark.
However, with the imminent opening of Abu Dhabi Global Marketplace, the emirates new dedicated financial free zone, banking and financial services looks set to join other thriving non-oil sectors, such as healthcare, aviation and education, all of which are experiencing strong growth, while positively influencing the emirate's property market by diversifying the demand drivers.
Average asking rates for Grade A office space in the capital remain stable in general at AED 1,850 psm (Q1 2015), however iconic schemes such as the World Trade Centre offices (AED 2,000 psm), Nation Tower (AED 2,000 psm) and International Tower (AED 2,050) continue to experience upward pressure on rents and in fact recorded rental growth of between 8%-13% during the final quarter of 2014, before stabilizing during the first quarter of 2015.
Etihad Towers (AED 2,250 psm) on the other hand continues to cement its position as the city's super prime benchmark, with rents breaking away from the wider Grade A market, registering an 18% increase in rents during Q4 2014, underscoring the desirability of this highly sought after scheme.
Cluttons also reports that the soon to open Abu Dhabi Global Market Square is primed to service specialist pent up demand, separating it to an extent from the rest of the city's local office market.
Steve Morgan, chief executive of Cluttons Middle East said, "The new freezone is expected to address the back log of demand from financial institutions looking to enter the Abu Dhabi market and operate in an environment that is governed by international financial regulations. It is still too early to assess how rapidly these units will be absorbed in to the market, given the significant price differential and that the majority of wider international occupier requirements still stem from the requirement to secure trade licenses in order to operate in the emirate."
Cluttons' international research and business development manager, Faisal Durrani added, "Abu Dhabi Global Marketplace is clearly the capital's answer to the Dubai International Financial Centre, but it's more critical role in nurturing and catalyzing growth in the financial services sector is even more important. The ramifications this will have on the long term evolution and rebalancing of the economy as the government works to tip the scales in favor of non-hydrocarbon related growth will be tremendous. The banking and financial services sector is a prized economic segment in any nation thanks to the economic and human capital boost that accompanies it. For Abu Dhabi while this is certainly not a new economic segment, but it will offer the sector a fresh relaunch pad for it to take its place amongst the key economic pillars in the emirate. For the residential real estate sector, the emergence of a rapidly expanding number of affluent new households will mean sustained medium to long term demand for rented and owned accommodation, which takes a step closer to the elusive goal of sustainable market growth."
Cluttons states that at present, the performance of the office market is however very much dependent on the demand from oil-firms, which for the large part remain dominated by public sector entities.
Morgan further explained "The evolution of oil prices over the course of the year will very much dictate how the office market fares not just in Abu Dhabi, but across most OPEC member states. For now it is our view that with the limited amount of Grade A space available and in the pipeline, and with demand likely to persist, according to our central scenario, office rents are likely to hold steady, with almost no movement in expected this year at the top end of the market".