Abu Dhabi Real Estate Market Overview

Q1 2015
Abu Dhabi Real Estate
Market Overview
Abu Dhabi Market Summary
The first quarter of 2015 recorded further growth in the residential rental and hospitality sectors while the
residential sales, retail and office sectors remained stable. Following the decline in oil prices, we expect there
to be a reduction in government spending this year which will slow down the pace of demand growth. On the
other hand, the short-term supply picture is generally constrained leading to relatively stable market conditions.
Residential Rental growth continued at 4% during Q1 2015 (following 11% growth in 2014) – due to limited
quality supply across all price points and the rent cap having been removed. The Residential Sales market
remained stable (following 25% growth during 2014) due to a decline in investor sentiment following the
reduction in oil prices.
The Office market remained stable following two successive quarters of recovery and growth – with demand
remaining relatively flat and limited supply completions. Vacancy rates for office space are expected to remain
stable this year given that a significant amount of the new supply in the pipeline is pre-committed.
Retail rents remained stable this quarter. There were no major supply completions in Q1 and completions in the
rest of 2015 and 2016 are limited, although there are a number of super regional malls expected to enter the
market in the medium term (post 2018).
The Hospitality market was the strongest performing sector this quarter, driven by wide-ranging government
initiatives to boost tourism. While Dubai registered a slowdown in the hospitality market this quarter, Abu Dhabi
saw an increase in hotel ADRs for the first time since 2010 (YT February up 12% from the previous year). Hotel
occupancies registered 77% in YT February, up one percentage point from the same period in 2014.
Abu Dhabi Prime Rental Clock
Q1 2014
Rental
Growth
Slowing
Rental
Growth
Accelerating
Q1 2015
Rents
Falling
Rents
Bottoming
Out
Retail
Residential
Office
Rental
Growth
Slowing
Rents
Falling
Rental
Growth
Accelerating
Rents
Bottoming
Out
Hotel*
* Hotel clock reflects the movement of RevPAR
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are
not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds
depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or
remain at the same point in their cycle for extended periods.
Source: JLL
Abu Dhabi Office Market Overview
Market Summary
Hot Topic
Total stock reached approximately 3.2 million sq m GLA in Q1,
with the only delivery being Finance House HQ at Capital Centre
adding approximately 25,000 sq m GLA. An additional 359,000 sq
m of office GLA is expected to be delivered throughout the year
including Addax Tower on Reem Island, ADIB HQ on Airport
Road and Al Hilal Bank HQ on Al Maryah Island.
Abu Dhabi Global Market (ADGM), concluded its extensive public
consultation process on the new laws and regulations that will
apply to businesses operating within the free zone.
Average Grade A and B office rents remained stable this quarter
at AED 1,730 per sq m and AED 1,180 per sq m respectively –
due to limited supply completions and demand remaining
relatively flat. 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.
With limited completions during Q1, the market-wide vacancy rate
remained at 25%, with vacancy rates remaining minimal within
prime schemes. Overall vacancy rates are expected to remain at
this level throughout the year, given the significant proportion of
near-term completions that are pre-committed.
Leasing of the Abu Dhabi Global Market Square (previously
Sowwah Square) is still largely on-hold pending finalisation of the
new freezone regulations. However, Abu Dhabi Global Market
(ADGM) has signed a 50-year lease with Mubadala Development
Company for the Abu Dhabi Global Market Building that was
originally planned for the Abu Dhabi Securities Exchange.
The Minister of Economy announced that the UAE is at an
advanced stage of drafting a foreign investment law allowing
100% foreign ownership of companies operating outside free
zones. This will, however, only apply to some strategic sectors.
This new law is intended to support innovation and technology
transfer through foreign direct investment. The extent to which this
will be implemented in Abu Dhabi in the short term is still to be
determined.
Office Supply
Current Supply (2012–2015)
2.9M
sq m (GLA)
2012
3.0M
3.1M
sq m (GLA)
sq m (GLA)
2013
2014
Future Supply (2015–2017)
3.2M
359K
sq m (GLA)
155K
sq m (GLA)
Q1 2015
sq m (GLA)
9M 2015
291K
sq m (GLA)
2016
2017
Office Performance
Vacancy Rate
39%
Q1 2014
Average Rents (per sq m) / Annual Change
25%
Q1 2015
Grade A
AED
Grade B
2015 / 2016
Outlook
1,540
1,730
12%
Q1 2014
Q1 2015
Y-o-Y
1,180
1,180
0%
Q1 2014
Q1 2015
2015 / 2016
Outlook
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Y-o-Y
Abu Dhabi Residential Market Overview
Market Summary
Hot Topic
No major deliveries took place during the first quarter of 2015.
However, approximately 5,000 residential units are expected to
enter the market by the end of 2015, dominated by the delivery of
The Views (Saraya), Hydra Avenue and The Wave (Al Reem
Island), C59 (Rawdhat) and Amwaj 2 (Al Raha Beach).
Residential demand remains dominated by those wanting to rent
rather than buy, with sales transaction volumes remaining much
lower in Abu Dhabi than Dubai.
While sale prices in Dubai have declined, Abu Dhabi’s sale prices
for residential units (apartments and villas) remained stable
during Q1 at approximately AED16,000 per sq m.
Rents for prime 2 bedroom apartments continued to increase this
quarter given the limited supply in the market, registering a 4%
increase to reach approximately AED 163,000 p.a.
There remains a shortage of quality supply across all price points
and an acute shortage of affordable housing.
Average prime rents grew by 17% in 2013 and 11% in 2014,
driven by demand growth outstripping supply completions and
compounded by the removal of the rent cap. We expect there to
be a reduction in government spending this year with rental
growth reducing to single-digit levels, and stabilisation as further
supply enters the market.
The sales market witnessed much higher growth rates over the
last two years (25% per annum during 2013 and 2014), with
prices stabilising since Q4 2014, largely due to the impact on
sentiment from the decline in oil prices and equities markets. Sale
prices are expected to remain stable this year.
Residential Supply
Current Supply (2012–2015)
Future Supply (2015–2017)
225K
236K
244K
244K
2012
2013
2014
Q1 2015
units
units
units
units
5K
units
5K
14K
units
9M 2015
units
2016
2017
Residential
ResidentialPerformance
Performance
Abu Dhabi Residential Property Rent and Sale Growth
Apartment
residential
Sales
Rentals
0%
4%
Villa
residential
Q-o-Q (2BR)
Sales
10%
Rentals
12%
Y-o-Y (2BR)
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Sales
Rentals
0%
0%
Q-o-Q (3BR)
Sales
Rentals
15%
8%
Y-o-Y (3BR)
Abu Dhabi Retail Market Overview
Market Summary
Hot Topic
No major deliveries took place during the first quarter of 2015
keeping the total retail supply at 2.6 million sq m of retail GLA.
About 87,000 sq m of retail GLA is expected to enter the market
by the end of 2015, largely as non mall retail within mixed-use
developments.
Yas Mall completed its first full quarter of trading and has been
well received by consumers and retailers.
A number of super regional malls are scheduled to enter the
market from 2018, which will substantially increase Abu Dhabi’s
retail supply in the medium term, leading to a polarisation of the
retail market. In the meantime, retail rents are expected to remain
stable.
Gulf Related has announced that the main contract for Al Maryah
Central Mall will be awarded in May 2015 and that work will start in
August. Also in Q1, National Real Estate Company (NREC) has
appointed a consultancy team to manage the development of
Reem Mall on Reem Island. This mall is currently at concept
design stage, with construction expected to start this year.
Average line store rents within well-located malls have remained
stable at AED 3,000 per sq m p.a. (Abu Dhabi Island) and AED
1,860 per sq m p.a. (off Island). Vacancies remain minimal within
established regional and super regional malls.
Retail Supply
Current Supply (2012–2015)
1.9M
sq m (GLA)
2012
2.2M
sq m (GLA)
2013
2.5M
sq m (GLA)
2014
Future Supply (2015–2017)
2.6M
87K
sq m (GLA)
85K
sq m (GLA)
9M 2015
Q1 2015
78K
sq m (GLA)
sq m (GLA)
2016
2017
Retail Performance
Vacancy Rate
2%
Q1 2014
Average Retail Rents (per sq m) /Annual Change
2%
Q1 2015
AED
AD
Island
Off AD
Island
2015 / 2016
Outlook
3,000
3,000
0%
Q1 2014
Q1 2015
Y-o-Y
1,820
1,860
2%
Q1 2014
Q1 2015
Y-o-Y
2015 / 2016
Outlook
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Abu Dhabi Hotel Market Overview
Market Summary
Hot Topic
Two major openings occurred during Q1 2015 – TRYP by
Wyndham (146 keys) and the Swiss-Belhotel Corniche (189
keys). Additionally, 500 keys were added to the serviced
apartments sector with the opening of the Meera Time Residence
in Saraya and Danat Residences in Danet Abu Dhabi.
Despite the heavy competition in the market, ADR levels
increased for the first time since 2010 to reach approximately
USD 169, reflecting an increase of 12% in YT February 2015.
Approximately 3,000 additional rooms are expected to enter the
market by the end of 2015, including the Millennium Bab Al Qasr
with 677 rooms and Grand Hyatt with 368 rooms.
By the end of 2017, 5,500 rooms are planned to be added to the
overall supply in the upscale and upper upscale segments. This
will bring the total room supply to approximately 25,700 rooms by
the end of 2017.
According to ADTCA, approximately 3.5 million guests visited the
Emirate in 2014, which represents a 24% increase over 2013.
Abu Dhabi tourism is heavily reliant on GCC countries which
represent nearly 40% of total hotel guests. Asia is the fastest
growing market, with a 37% increase in Asian hotel guests in
2014.
This is largely driven by wide-ranging government initiatives to
increase tourism – including the expansion of Etihad Airways, the
further improvement of Abu Dhabi’s leisure offering and
campaigns by the Abu Dhabi Tourism and Culture Authority to
promote Abu Dhabi internationally.
Occupancy rates witnessed a far lower rate of growth, reaching
77% in the first two months of 2015, just one percentage point
higher than 2014.
The combined growth of improved ADR levels and occupancy
rates pushed the RevPAR up by 14%, to reach approximately
USD 132.
Hotel Supply
Current Supply (2012–2015)
Future Supply (2015–2017)
15,700 18,150 19,700 20,200
keys
2012
keys
2013
keys
keys
2014
Q1 2015
3,000
1,200
keys
1,300
keys
9M 2015
keys
2016
2017
Hotel Performance
Occupancy Rate
76%
YT Feb
2014
Average Daily Rate/Annual Change
77%
YT Feb
2015
USD
2015 / 2016
Outlook
151
YT Feb
2014
169 12%
YT Feb
2015
2015 / 2016
Outlook
Source : STR Global
Source : STR Global
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Y-o-Y
Definitions and methodology
Interpretation of market positions:
6 o’clock indicates a turning point towards rental growth. At this position, we believe the market has reached its
lowest point and the next movement in rents is likely to be upwards.
9 o’clock indicates the market has reached the rental growth peak, while rents may continue to increase over
coming quarters the market is heading towards a period of rental stabilisation.
12 o’clock indicates a turning point towards a market consolidation / slowdown. At this position, the market has
no further rental growth potential left in the current cycle, with the next move likely to be downwards.
3 O’clock indicates the market has reached its point of fastest decline. While rents may continue to decline for
some time, the rate of decrease is expected to slow as the market moves towards a period of rental
stabilisation.
Completed residential building refers to a building that is handed over for immediate occupation. This data
excludes labour accommodation.
Residential performance data is based on asking prices from a basket of selected developments.
Office buildings are considered handed over once they are ready for tenant fit-outs.
Total supply excludes government owned and wholly occupied buildings (such as Abu Dhabi Municipality).
Average Grade A Office rents represent the average effective rents taken from a basket of selected buildings
defined as superior in the current market. It is an effective rent that accounts for ‘rent free’ periods only (and
not the financial impact of any other tenant incentive/s) and excludes service charges and local taxes.
Vacancy rate is based on estimates from the JLL Agency team. It represents the average rate across all
buildings in the supply sheet.
Retail space is considered handed over once it is open and operational.
Classification of Retail Centers is based upon the ULI definition and based on their GLA:
• Super Regional Malls have a GLA of above 90,000 sq m
• Regional Malls have a GLA of 30,000 - 90,000 sq m
• Community Malls have a GLA of 10,000 - 30,000 sq m
• Neighborhood Malls have a GLA of 3,000 - 10,000 sq m
• Convenience Malls have a GLA of less than 3,000 sq m
Prime Rent Shopping Centre represents the top open market net rent that could be expected for a notional
standard line unit shop situated in a specified shopping centre, as at the survey date.
Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across
standard in line unit shops at super regional & regional malls on Abu Dhabi Island.
Hotels are considered handed over once they are open and operational.
Hotel room supply is based on existing supply figures provided by ADTCA as well as future hotel development
data tracked by JLL Hotels. Room supply includes all graded supply and excludes serviced apartments.
Hotel performance data is based on a monthly survey conducted by STR Global on a sample of international
standard midscale – upscale hotels.
Abu Dhabi
Abu Dhabi Trade Centre Building
7th Floor, Office No. 3
PO Box 36788
Tourist Club Area
Abu Dhabi, UAE
Tel: +971 2 443 7772
Fax: +971 2 443 7762
For questions and inquires about the Abu Dhabi real estate market, please contact:
David Dudley
Regional Director / Head of
Abu Dhabi Office
[email protected]
Peter Stebbings
Head of Valuation Advisory
Abu Dhabi
[email protected]
Chiheb Ben-Mahmoud
Head of Hotels & Hospitality
MEA
[email protected]
Andrew Williamson
Head of Retail
MENA
[email protected]
Craig Plumb
Head of Research
MENA
[email protected]
Corinna Klaus
Senior Agent, Agency
Abu Dhabi
[email protected]
Andreas Skiadopoulos
Manager – Strategic Consulting
Abu Dhabi
[email protected]
Mai Hassan
Financial Analyst - Strategic Consulting
Abu Dhabi
[email protected]
@JLLMENA
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