The supply of commercial office space in Abu Dhabi is expected to increase as new developments come online in the next six to 12 months, experts in the real estate market have said.
Abu Dhabi currently has only 2.3 million square metres of international quality Grade A space in the metropolitan area, equivalent to 11 per cent of the supply, according to a recent report by Jones Lang LaSalle.
It is expected that by the end of 2013, total Grade A and Grade B supply will increase to 3.5 million square metres, with a number of major projects due for delivery this year, the report said. "We're going to move this year from having very little supply to a market really increasing in supply," said David Dudley, Head of Jones Lang LaSalle's Abu Dhabi office.
Asked whether these new areas would encourage some of the current small- and medium-sized businesses in the traditional business hub of Abu Dhabi to move out of the congested part of the city and into new developments, Dudley said that a lot of these new projects such as Etihad Towers or Capital Plaza, which are great Grade A projects, are probably going to target clients such as those in the banking sector, government, oil and gas. "Those big projects are less appropriate for SMEs."
However, he pointed out that "what we will see is a separation between very high quality Grade A space, and poorer quality space where rents will fall more".
With new supply coming in, this will provide greater choice since vacancies will rise and as a result rents will come down on every scheme, he said.
The subsequent rent declines and increased options will create a market favourable for tenants and encourage relocation by companies looking to upgrade, the JLL report says.
"Well designed and strategically located offices with good accessibility and functionality will maintain the strongest rents, widening the rent gap between Grade A and B space during 2011."
David Quinn, Head of Middle East Agency Services at Cushman & Wakefield, a global real estate research firm, said that there haven't been any real predictions made on how much rents will fall once new supply comes on the market.
"We have seen it drop by 40 per cent since the peak in 2009. How much it will fall depends on demand and supply. It's very difficult to say because we're not getting any indication on how much demand there s going to be," Quinn said. "But we know that the rents will continue falling."
Considering that office space will increase with the supply and that competition is going to be greater, Quinn said that it would be advisable for landlords to start looking at upgrading and renovating their existing buildings.
"Those landlords have to react to keep their tenants," he said.
He said the problem in much of Abu Dhabi is that many buildings have multi-ownership, which affects the ability to renovate. While when it's single ownership, it's more likely to get renovated.
Dudley said that there is a government priority to regenerate the central business district (CBD) , which would only happen over time. "It will become redeveloped," he said.
The CBD includes Hamdan Street and Khalifa Street and is a mixed-use area offering office space of a variety of specifications, age and quality, a recent Cushman & Wakefield report explains.
Currently the area bene-fits from very few Grade A buildings, however there are a number of projects under construction such as Shining Towers and Central Market.
In the Al Khalidiyah area there are many small businesses currently working out of villas that will have to relocate under new city regulations, the report says.
"This will help to fill new office towers under construction, however it is likely that most of the small businesses will be focused on Grade B office space rather than Grade A towers."
New supply of commercial space is expected to reduce rents in Abu Dhabi. However, businesses in the traditional business area of the city are not looking to move out of their current locations anytime soon."No one's talking about moving out," said David Quinn of Middle East Agency Services at Cushman & Wakefield, a global real estate research firm. He said the majority prefers to wait to see how the market progresses."The companies currently in those congested city centre areas are generally paying 2005 rent plus the rent cap, so they are still paying a lot less than those charged in the new schemes," said David Dudley, Head of Jones Lang LaSalle's Abu Dhabi office.
"It is difficult for them to be in poor grade space, but then they would think about the actual cost."One manager of an airline business located on Hamdan Street, who wished to remain anonymous, told Gulf News that although parking is "terrible" in the area, "moving is a difficult thing at the moment because of rent"."Even customers hate to come to our office to pick up their tickets because of the parking problem," he said.Maintenance is another problem that tenants in those older commercial office space are facing. "There's partiality because the people who are paying the new rent get all the service."Tahir Mehboob, Director of Marketing at Farah Public Relations, also located on Hamdan Street, told Gulf News that the office has been in operation out of its current location for 15 years. Mehboob said that there has never been any consideration of moving offices because it's in a "prime location." "It's not easy to find an office at this time in this place," he said."Rent is another reason.
If you get a new office here it will cost you about Dh100,000, but we are paying Dh40,000. So as far as rent is concerned, it's really good," he added. For Alaa Awda, a consultant at a legal consultancy firm in Abu Dhabi, said that though the area is congested, it's in the middle of all the business action. "It's good to be where it's crowded," he said.
"It would save one a lot of money spent on advertising. While if you move somewhere further outside the city, then you have to invest in marketing and advertising to make sure everyone knows where you do your business.
"When the buildings are complete, developers come under some pressure. That's when the competition becomes greater over tenants as they would have a stronger bargaining position," Quinn said. "Many tenants are looking for rent at the same level as what they are paying now."
From / Gulf News