Office property market at crossroads
Up to 11 per cent of all office space in the the capital could be lying empty by the end of next year as several new developments come online, according to a property consultancy.
The increase in vacancies, up from 3 per cent in the first quarter of this year, will force landlords to be more competitive and push prices for lower-end property down. As much as 4 million square feet of space is expected to be added to the market over the next 18 months, according to CB Richard Ellis (CBRE).
Abu Dhabi's property market is at a “crossroads”, Mr Foulds said. Developers and landlords have been reticent to bring in lower office rents and new tenants have been reluctant to sign deals.
“You have to either hold your ground and wait or take a stance in the marketplace that might end up being wrong in retrospect,” Mr Foulds said. “But in developed markets, the leading companies are the first to act. From our perspective, it’s more important to keep a building fully leased than to wait for a better price.”
The challenge is that many of the office buildings were designed and planned during a more optimistic, economic boom period, said Nicholas Maclean, the regional head of CBRE’s operations.
“It’s the risk of development,” Mr Maclean said. “You may not get the return you want but the best way to improve an asset is to start getting turnover of rent.
Abu Dhabi commercial rents fell by 23.7 per cent last year to an average rate of Dh267 (US72.68) a square foot, according to CBRE’s global office rents survey released last month. Abu Dhabi is the 19th most expensive office market in the world.
Mr Foulds said Abu Dhabi’s prices could have further to drop in the months ahead as tenants and building owners try to come to agreements on prices. However, a likely transition of businesses from villas to office buildings could result in those businesses taking up 1 million to 1.2 million sq feet of space in towers.
“Many landlords have been slow to respond and they will have to start adjusting rents to meet the market.” In Abu Dhabi, rents have also fallen sharply since late 2008 but landlords have been more willing to offer rent-free periods and other incentives to get buildings fully leased.
