Sorouh Real Estate is doing things a little differently in Abu Dhabi. While most developers are still weighing the pros and cons of offering three- or five-year leases, Sorouh has had one for 30 years and another for ten years. It has also been aggressively offering residential space through lease programmes packed with incentives for its Sun development on Al Reem Island.
The rest of the market has been looking on with a mix of awe and scepticism on the Sorouh campaigns. The scepticism relates to whether as a developer Sorouh can afford to go for such long-term deals on its leasing.
In a rebuttal to all the doubters, Paul Middleton, executive director for sales and marketing at the Abu Dhabi-headquartered developer, explains at length the rationale for taking this course and how it will pay off in the long run.
GULF NEWS: For an outsider a 30-year lease looks excessive, especially in a highly cyclical marketplace. How would you address that?
Paul Middleton: It was very clear from what was happening in the market — and from what our customers were telling us — that we had to do something different. To be quite honest, it was very basic marketing — we understood what their needs were and created products and services to suit them based on what we had.
We got a 30-year deal on Al Rayyana with an organisation that's related to the French Government. Normally, our lease deals are not 30 years.
In this instance the French were looking for an extremely long lease because they had made a commitment to Abu Dhabi for the long term. What they certainly don't want is to have to renegotiate lease terms every five or ten years. We did not drive this deal… it was much more about the customer.
They tend to be natural in more mature markets with blue-chip clients or in core commercial areas such as London or New York.
Are long-term deals going to be the new reality in Abu Dhabi's commercial space?
We have a lease deal with the Austrian Embassy for space in Sky Tower and that's for ten years, which is more normal for commercial space.
The days of any developer or master-developer in Abu Dhabi trying to dictate terms to a customer are gone. We were trying to accommodate the customer and giving them what they are looking for.
For the residential leases for the Sun, aren't you in effect subsidising the deals through a ten per cent cash-back or six-weeks of rent-free?
Tenants are looking for better quality at better value and the Sun tower's residences can offer customers both of those. I never talk about subsidising customers because that sounds so patronising.
There's more competition in the marketplace and there's more modern stock coming in. As a developer and owner of some of the new stock, we are doing our best to listen to the market.
None of these are deals are being conducted through the back door — we are being as transparent as possible.
In terms of preferences, would you say commercial tenants carry a bit more weight with you?
A corporate customer is very different from somebody who's trying to make a place their home.
We used different channels on the lease-to-own promotions for corporate clients.
For the residential, we have taken a more conventional advertising route. We used outdoor a bit, the press as well and some of the digital platforms which tends to work very well here.
We haven't prioritised one tenant base over the other. The only difference was in the way the communication was carried out.
Do you believe the big movement in Abu Dhabi's commercial space towards new stock will happen in the first half of next year?
People are cautious though they do see the benefits of moving into more modern space for lots of reason, whether it's the actual environment or the convenience of having as much parking as you need for your people which is a big deal in Abu Dhabi. Or it could be having amenities on your doorstep which your people can enjoy.
Moving offices is a big decision and not one most customers will take lightly. I would describe the market as cautious and very realistic. Tenants are looking for value or for a good reason to move other than it being modern.
Do you see the momentum picking up significantly in the short term?
There are a lot of things involved. It would depend on the market and how companies feel about the economic outlook as a whole and whether they are prepared to take such decisions. Yes, there are compelling reasons for business owners to move into newer stock in the city.
But it may not necessarily be in the early part of the new year given what is happening globally — there is still a bit of nervousness.
We are still getting a lot of enquiries. We have done more than 225 proposals for our commercial space in the last 18 months, and that's as good an indicator of the sort of interest out there. Converting that still requires a lot of hard work.
We don't see that diminishing that much, but it is still fundamentally different to people actually moving in.
Going forward, are you going to be extremely specific in the way you target potential corporate tenants?
We do target national organisations in Abu Dhabi as all of our assets are here. We do reach out to a lot of government and the large private organisations.
At the same time, we are speaking to international organisations who are headquartered here or intend to have such bases here.
Have you nearly completed filling up the residential component of the Sun tower?
Between Sun and Sky, we have got almost 800 families in there. While Sky has 39 floors of commercial, the whole of Sun is residential. In all there are just over 1,100 residential units.
What of the retail components?
The Boutique Al Shams will open with its first tenants at the end of the first quarter of next year. That includes Waitrose, the supermarket operator.
We have two floors dedicated to retail and the first is fully let and we are very close to filling the second.
As more offices and retail open, the more momentum we get on that residential side. And in the second quarter of next year, we have Al Rayyana which is our development up by the golf course.
How would you describe what the market outlook could be in 2012?
Challenging. And interesting, no doubt.