JEDDAH — Abu Dhabi real estate market remains stable in Q2, according to the latest JLL Real Estate Market Overview report released Monday. JLL, the world's leading real estate investment and advisory firm, today released its JLL's “Q2 2015 Abu Dhabi Real Estate Overview” said the period saw continued stabilization across all asset classes, following the 2013-2014 market recovery. The pace of demand growth has slowed due to the decline in oil prices affecting the strength of the oil sector and leading to a reduction in government spending and sentiment. While short-term supply remains under control, the extent to which stable market conditions will continue very much depends on government spending plans. For the Residential Sales market, while prices have remained stable over Q2 2015, there has been continued downward pressure on transaction volumes due to the decline in sentiment, although developers are still generally successful with new product launches. Residential Rents have remained stable this quarter due to limited demand growth, but with vacancies remaining low in high quality, well-located schemes. Office demand remains subdued due to contraction in some sectors and a slowdown in the oil sector and government infrastructure investment. In spite of this, Grade A office rents have remained stable due to minimal vacancies in quality stock. Further office completions throughout the year are expected to increase the market-wide vacancy rate, but with Grade A rents being upheld. Retail Rents remained stable this quarter and this is expected to continue in the short-term. A number of Super Regional malls are set to enter the market from 2018, which will partly be supported by new population and tourism growth, but will also cause the market to polarize between high and low grade stock. The Hospitality market witnessed solid growth in hotel guests above 2014 levels driven by wide ranging initiatives to grow the tourism sector. ADRs have also registered an increase of 4% in YT May compared to the same period in 2014. Hotel occupancies registered 77% in YT May reaching the same levels as 2014. David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA, said: “The general trend for Q2 and indeed the first half of 2015 has been stability, with performance of most sectors remaining flat, and a slight increase in hospitality performance.” He noted: “Following a two year bull-run we are currently going through a period of mid-cycle stabilization. This is primarily driven by a slow-down in the pace of demand growth, but with short-term supply completions under control the market conditions are stable. The softening of demand principally stems from the decline in oil prices, which has directly affected Abu Dhabi's dominant petro-chemicals sector, and also lead to a reduction in domestic government spending as the government re-prioritizes its projects, and a decline in investor sentiment.” Moreover, he said “we still expect demand growth to continue, but at a slower pace. Employment creation and residential demand growth will continue to be sustained from projects commenced while oil prices were high – with projects such as the airport and Etihad expansion having an economic multiplier effect. However the extent to which conditions remain stable over the next year or so very much depends on the government's spending plans. With an increasing cost of living and a reduction in demand, we are currently at a ‘tipping point', with market stability very much dependent on the government continuing to invest in to major new infrastructure and economic development projects.” “Further key developments this quarter have been the government announcing new laws. The long awaited real estate laws have now been announced and are set for implementation, including provision for a new Real Estate Regulatory Authority and new regulations affecting escrow accounts, land and property registration, strata law, the licensing of real estate activity and new fees and procedures. This will particularly affect speculative residential development.” Office Total office stock reached approximately 3.2 million sq m GLA in Q2, with the delivery of new space at Masdar City, Abu Dhabi International Airport and Capital Centre adding 48,000 sq m GLA. An additional 140,000 sq m of office GLA is expected to enter the market throughout the year. Demand for office space has generally remained flat this quarter due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slow-down in government spending. 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. In spite of weak demand, Grade A office rents have remained stable due to minimal vacancies within Grade A stock, with average Grade A and B office rents remaining at AED 1,730 per sq m and AED 1,180 per sq m respectively. Residential No major deliveries took place during this quarter keeping residential stock at approximately 244,000 units. However, approximately 6,000 residential units are expected to enter the market by the end of 2015, dominated by the delivery of The Views in Saraya, Hydra Avenue and The Wave on Reem Island, C59 in Rawdhat and Amwaj 2 in Al Raha Beach. Prices have remained stable in Q2 2015 following 25% annual growth during 2013 and 2014. While prices have been upheld, there has been continued downward pressure on transaction volumes due to a decline in sentiment. Rents have remained stable this quarter. While demand growth has softened, stock completions currently remain stable and vacancy rates remain minimal within quality schemes. Retail Retail stock reached approximately 2.6 million sq m GLA with the only delivery being Al Shamkha Community Mall adding approximately 43,000 sq m of retail GLA. Approximately 54,000 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. Retail Rents remained stable this quarter and this is expected to continue in the short-term. Retail supply is expected to increase significantly from 2018 with the delivery of new Super Regional Malls. Demand for the new malls will partly be supported by new population and tourism growth. Dudley said “with greater competition, we expect the market to polarize with lower quality malls needing to be re-positioned. In the meantime, retail rents are expected to remain stable.” Hotels The second quarter of 2015 saw the soft opening of the 318 key Burj Al Sarab. The only noticeable change in the serviced apartment market was the grand opening of the Danat Residences in early April. Major openings expected for the coming months are the Grand Millennium Bab Al Qasr (677 keys), the Grand Hyatt with 368 rooms and the 315 room Marriott paired with a Marriott Executive Apartments. Demand continues to grow quarter on quarter, principally driven by wide-ranging government initiatives to increase tourism, including the expansion of the Airport and Etihad Airways, the further improvement of Abu Dhabi's leisure offering and attractions, among others. — SG
