JLL has released its second quarter (Q2 2015) Abu Dhabi Real Estate Overview report today that assesses the latest trends in the retail, office, residential and hospitality sectors.
“The general trend for Q2 and indeed the first half of 2015 has been stability, with performance of most sectors remaining flat, and a slight increase in hospitality performance,” shares David Dudley, international director and head of Abu Dhabi office, JLL MENA.
“Following a two year bull-run we are currently going through a period of mid-cycle stabilisation. This is primarily driven by a slowdown in the pace of demand growth, but with short term supply completions under control the market conditions are stable. The softening of demand principally stems from the decline in oil prices, which has directly affected Abu Dhabi’s dominant petro-chemicals sector, leading to a reduction in domestic government spending as the government re-prioritises its projects, in addition to a decline in investor sentiment,” he adds.
“We still expect demand growth to continue, but at a slower pace. Employment creation and residential demand growth will continue to be sustained from projects commenced while oil prices were high – with projects such as the airport and Etihad expansion having an economic multiplier effect. However, the extent to which conditions remain stable over the next year or so very much depends on the government’s spending plans. With an increasing cost of living and a reduction in demand, we are currently at a tipping point, with market stability very much dependent on the government continuing to invest in to major new infrastructure and economic development projects.”
Sector summary highlights
- Retail stock reached approximately 28 million sqft GLA with the only delivery being Al Shamkha Community Mall adding approximately 462,850 sqft of retail GLA. Approximately 581,250 sqft of retail GLA is expected to enter the market by the end of 2015, largely as non-mall retail within mixed-use developments.
- Retail rents remained stable this quarter, which is expected to continue in the short-term. Retail supply is expected to increase significantly from 2018 with the delivery of new super regional malls. Demand for the new malls will partly be supported by new population and tourism growth.
“With greater competition, we expect the market to polarise with lower quality malls needing to be re-positioned. In the meantime, retail rents are expected to remain stable,” says Dudley.
- Total office stock reached approximately 34 million sqft GLA in Q2, with the delivery of new space at Masdar City, Abu Dhabi International Airport and Capital Centre adding 516,665 sqft GLA. An additional 1.5 million sqft of office GLA is expected to enter the market throughout the year.
- Demand for office space has generally remained flat this quarter due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slowdown 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.
- No major deliveries took place during this quarter keeping residential stock at approximately 244,000 units. However, approximately 6,000 residential units are expected to enter the market by the end of 2015.
- For the Residential sales market, prices have remained stable in Q2 2015 following 25% annual growth during 2013 and 2014. While prices have been upheld, there has been continued downward pressure on transaction volumes due to a decline in sentiment. Residential rents have remained stable this quarter. While demand growth has softened, stock completions currently remain stable and vacancy rates remain minimal within quality schemes.
- The second quarter of 2015 saw the soft opening of the 318 key Burj Al Sarab. The only noticeable change in the serviced apartment market was the grand opening of the Danat Residences in early April. Major openings expected for the coming months are the Grand Millennium Bab Al Qasr (677 keys), the Grand Hyatt with 368 rooms and the 315 room Marriott paired with a Marriott Executive Apartments.
- Demand continues to grow quarter-on-quarter, principally driven by wide-ranging government initiatives to increase tourism, including the expansion of the International Airport and the national carrier Etihad Airways, further improvement of Abu Dhabi’s leisure offering and attractions and hosting of world-class events and major campaigns by the Abu Dhabi Tourism and Culture Authority to promote Abu Dhabi internationally.
“Further key developments this quarter have been the government announcing new laws. The long awaited real estate laws have now been announced and are set for implementation, including provision for a new Real Estate Regulatory Authority and new regulations affecting escrow accounts, land and property registration, strata law, licencing of real estate activity and new fees and procedures. This will particularly affect speculative residential development,” Dudley observes.
“The Abu Dhabi global market is further progressing plans for the emirate’s financial free zone, issuing its draft financial services regulations for public consultation. A key implication of these draft regulations is to restrict financial activity to non-Dirham trading to attract new demand rather than competing with existing local businesses,” he concludes.