Professional Speak: Updates on the Abu Dhabi office market

Updates on the Abu Dhabi office marketJerry Oates

The freehold and residential segments normally dominate UAE property news, though the commercial and industrial segments are no less important in their contributions to the growth of the UAE economy.

Jerry Oates, General Manager of Asteco Abu Dhabi discusses what's going on in the office market in the capital city.

- How the Abu Dhabi office segment is faring

Demand for office space across Abu Dhabi is generally robust, and is determined by the quality and age of the building, rather than just location.

Brand new buildings are, understandably, in high demand. However, demand is also high for office space anywhere from 10 to 15 years old as their rents are typically lower than those for brand new buildings.

Brand new commercial office space is typically found in designated investment areas such as on Reem Island, but there is also brand new commercial space being leased on the Corniche in buildings like Landmark Tower, Etihad Towers and the Al Bustan Complex.

Buildings older than 15 years are usually located on the Abu Dhabi mainland, and are seeing very low demand due to a lack of facilities and amenities. They also do not come with the provision of parking space or fitted space, which dramatically reduces their appeal.

We have seen a slight slowdown in the growth of transactional activity during this quarter (Q2) for commercial rents, with growth rates averaging at around 3-5% for Grade A space, and slightly lower for Grade B space.

Older stock buildings have seen little or no increase, despite the removal of the rent cap last year, but the slowdown in growth is mainly attributable to seasonality rather than market trends.

- Types of office space

In terms of the office classes that Asteco tracks rental rates for, the types of space on offer are as follows:

Grade A: This is the highest quality space on the market, and is generally newly constructed and fitted out with top-of-the-line fixtures, amenities and systems. Offices come either fully fitted, or as shell & core schemes.

Fitted offices are effectively commercial space that have been set up, furnished and are ready for use by businesses or services with minimum configuration or renovation required. This type of Grade A office space commands the highest rents.

Shell & core implies that the occupier would need to provide for the completion of the property to match their occupational requirements. For example, the walls would need to be plastered and decorated, ceiling plastered, etc.; glazing, heating/air conditioning, plumbing, kitchen facilities, etc., completed if required, plus partitioning, decorations and floor coverings (carpeting), etc.

Grade A office space means access to high-quality space with excellent facilities such as covered parking, high speed elevators, access to retail and F&B. Grade A space is also often attached to a mall or hotel. Availability is usually limited due to the take-up by large corporations.

Grade B: This is essentially your average office space. These buildings do not usually feature the same high quality fixtures, architecture and lobbies as Grade A space, but still offer a pleasant building environment complete with fully functional facilities. It also comes either fully fitted or as shell & core.

Taking Grade B space means tenants still enjoy high-quality environment with facilities such as indoor and outdoor parking and rents can be up to 50% lower than for Grade A space.

However, this type of space may not always be as aesthetically pleasing as Grade A locations; there may be no access to retail or local area F&B services; and availability is limited as rents are lower than Grade A space, and smaller corporations are looking for exactly this kind of business setup.

- Keeping tenants happy

Landlords should ensure that maintenance is regularly carried out to keep the building in prime condition.

Although the rent cap was removed in November in 2013, landlords also need to be wary of raising rents above the five to 10% mark, as the market in Abu Dhabi is becoming more tenant-oriented, with more choice for companies in terms of selecting office space.

It would also be advisable to encourage tenants to sign up for longer-term leases i.e. 10 years, by offering a slight discount as an incentive.

Advice for would-be tenants in Abu Dhabi

• Prospective tenants looking to secure quality office space need to be prepared to pay above market average rates. Grade A office space obviously include high rental rates of up to Dh1,950 per square foot for fitted space, and Dh1,200 for shell & core

• It is also important to consider parking availability when looking at potential locations

• Companies eager to find a good location with more Grade A high quality office stock should look into due-to-be - released investment areas such as Reem Island and Maryah Island in 2014 and 2015

Source: Lovely Claire CD, Special to Freehold

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