Abu Dhabi Real Estate Overview

Residential

Despite the announcement of numerous master planned developments, the impact of a two-year construction moratorium imposed between 1999 and 2001 is still evident in Abu Dhabi. Current demand for all types of residential property in Abu Dhabi has outstripped available supply, with occupancy levels of approximately 97-98% reported across the city.

Demand in Abu Dhabi’s residential market is buoyant in all categories, and rental prices have steadily increased over a period of six years. This price appreciation has been particularly marked at the upper end of the pricing scale. The inflationary pressures resulting from rapid rental price increases have prompted the Abu Dhabi Government to issue a law in late 2006, capping rent review increases at 7% per annum, followed by a further revision of the rent cap to 5% in January 2008. Nevertheless, market pressure means that new leases are commonly contracted at premiums of up to 25% over the average passing rents of incumbent neighbors. Price appreciation in the high-income segment notwithstanding, the largest gap in the current market remains in the middle-income segment.

Given the extremely limited facilities enjoyed by existing middle-income properties, new buildings with a range of ancillary facilities are likely to perform particularly well. Overall benchmarks of building quality and facility provision not are increasing to meet occupier requirements. All new apartments targeting middle-income occupiers and above offer central air conditioning and gas facilities. Almost 70% have underground car parking while around 25% provide a health club and/or gym to tenants. Provision of these associated facilities is now a minimum benchmark for new developments in Abu Dhabi.

Based on confirmed developments already undergoing construction, we expect almost 50,000 new units to be delivered to the Abu Dhabi market between 2008 and 2011. Beyond this three-year horizon, 2012 and 2013 are expected to be crucial in terms of Abu Dhabi’s future demand-supply dynamic, with the gradual completion of multi phased, mixed-use developments in Al Raha Beach, Al Reem Island and Saadiyat Island mega projects.


Offices

Abu Dhabi’s office sector experienced development in spurts between 1978 and 2007. In recent years, growth has not been as dramatic as witnessed in the early 1980s when the supply of office space doubled consecutively in 1982 and 1983. Since 2000, total office supply has grown by 50% of a total of 1.4 million sq. m. of NLA (Net Leasable Area). Considering the scale of projects under construction and planned, it is anticipated that by 2012, existing office space supply will increase by over 1.1 million sq. m.

The continuous flow of new organizations keen to establish themselves in the emirate, as well as the natural expansion of existing organizations against the backdrop of benign economic conditions, serve as key demand drivers. These factors are further reinforced by the emirate’s economic diversification ambitions, and the development of planned industrial, financial and free trade zones. According to statistics provided by the Abu Dhabi Chamber of Commerce and Industry, there were approximately 60,000 licensed businesses in the city in 2006, growing at an annual rate of 5%. These figures however, do not account for the unquantifiable proportion of businesses still awaiting licenses that nevertheless impact positively on the demand side.

A comprehensive survey of Abu Dhabi’s dedicated office stock has identified the following characteristics:

  • - There are few purpose-built primary grade office buildings in the city, and the bulk of them are owned by government or semi-government entities.
  • - Occupancy rates in purpose-built office buildings are typically around 99%, with the balance of space being subject to natural vacancy rate which is associated with lease transfers or new tenant ft-outs.
  • - The quality of the city’s remaining stock is low with the majority of office buildings in the city of secondary or tertiary grade. Nevertheless, the finishes of these buildings are generally fair and they offer functional office space, albeit lacking in modern communications systems, services and floor plate design efficiency.
  • - Virtually all buildings suffer from a lack of dedicated parking facilities.

Research indicates that over 500,000 sq. m. of office space in currently under construction across the city. Despite this, unsatisfied demand has resulted in average rental increases of over 30% in all office accommodation under study between 2005 and 2006. There have been further increases of around 10% between 2006 and 2007, with the reduction in the average level of increase attributable to the government imposed rental cap. It is anticipated that asking rents will continue to rise in spite of the recent 5% rent cap view, until substantial supply enters the market from the end of 2010 onwards.