For the first time in six years the capital’s stagnant office market is showing signs of returning to life.
Rents for prime office space in Abu Dhabi increased by an average of 6 per cent during the quarter ended September, said a report from JLL published yesterday. Rents rose to Dh1,640 per square metre from Dh1,540 per sq metre in June.
Experts said that an increase in demand from private sector tenants prompted by boosts in government spending, coupled with a slowdown in the amount of new stock coming to the market, finally pushed up rents for the most expensive buildings.
Others suggested that rents rose after Mubadala’s decision last year to put on hold its leasing plan at its 183,000 sq metre Sowwah Square scheme on Al Maryah Island until new rules governing the operations of the city’s financial free zone have been published.
JLL said that the uptick could be seen only in rents paid for prime offices, while secondary space rents – which account for most of the buildings in the capital – again remained stable at Dh1,180 per sq metre.
According to landlords, prime office rents in Abu Dhabi fell dramatically from around Dh4,750 per sq metre in 2009 as the global financial crisis led to firms reducing the amount of office space they leased just as a glut of new prime office space hit the market in areas such as Sowwah Square, the Capital Centre and along the Corniche.
JLL said that new office openings in the three months to the end of September were limited to the handover of the mixed use Abu Dhabi Plaza Complex on Hamdan Street. With no other major deliveries, the total office stock remains around 3.1 million sq metres.
“All sectors of the Abu Dhabi market are now positioned in the recovery stage of their cycle, for the first time since 2008,” said David Dudley, the head of JLL’s Abu Dhabi office. “The office market has witnessed growth for the first time after being stable for the past two years.”
David Cockerton, fund manager for Sinogulf Investments which is currently leasing its 41,000 sq metre International Tower office building in the Capital Centre close to Adnec, said that his building was currently renting for around Dh2,000 per sq metre.
“Our rents increased over the past quarter by around 6 per cent, so in that respect we agree with JLL’s data,” Mr Cockerton said. “But we have been registering a rent increase for some time now and have been surprised that JLL’s data has only just caught up with what we have been seeing in the marketplace.”
MPM Properties, a subsidiary of Abu Dhabi Islamic Bank, reported increases of between 3 and 5 per cent on renewals and extensions of lease contracts, especially for offices of 250 to 500 sq metres. It said prime rents stood at between Dh1,400 and Dh1,750 per sq metre.
“The office sector currently lacks grade A office space, especially since the leasing of Sowwah Square was put on hold,” said Vaibhav Sharma, the head of strategic advisory and research at MPM. “The new supply on Al Reem Island will cater to small to mid-sized companies, but large corporations are expected to have difficulty in getting multiple floors in a single location. Many new buildings have multiple owners who own offices ranging from single small office to a number of floors.”
JLL also reported that house prices in the capital increased 6 per cent during the three months to the end of September to stand at around Dh16,000 per sq metre as about 1,200 new homes were handed over, bringing the total number of homes in the city to about 242,000.
It said that housing rents remained stable, with prime two-bedroom apartments in the capital averaging Dh150,000 a year.
Average retail rents for malls on Abu Dhabi Island also remained stable at Dh3,000 per sq metre per year.
lbarnard@thenational.ae
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