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Abu Dhabi has 90 per cent of the UAE's oil wealth, yet it has smaller and less dynamic petty market compared to Dubai. As more buildings are constructed and the city evolves, Abu Dhabi's commercial property market also continues to mature and meet the occupational requirements of traditional occupiers and new global occupiers, who seek international best standards.
The total vacancy rates in Abu Dhabi have increased from 6 per cent in 2007 to 38 per cent this year, according to a Knight Frank report, raising concern among landlords but providing greater opportunity for occupiers. The vacancy rate also tells of the changing dynamics of the city's commercial property market. In 2007 occupiers needed to lease an office on the spot in fear of losing the property to other interested parties. Furthermore, it was imperative to find one that was closer to the Corniche to help enhance the status of the company.
This year, occupiers are now looking for a lot more from their premises, including more efficient, flexible floor plates, better access and parking, international standards for property management and amenities to satisfy employees. As commercial rents have fallen in recent years, occupiers are looking to upgrade their accommodation, improve the company's image and enhance the work environment.
Abu Dhabi has a smaller private sector and this limits the competition and the speed in which we see improvements in the market. However, we are seeing vast improvements that are being led by various stakeholders in the emirate, mainly on Abu Dhabi island and not on the new master-planned island developments such as Yas Island, Saadiyat Island or Al Reem Island.
With Abu Dhabi becoming a global city and attracting international occupiers, what can the emirate do to ensure that it improves its image among incoming and existing occupiers?
There are a number of international bodies based in the UAE that help provide standards for international best practices. The Royal Institution of Chartered Surveyors (Rics) is an internationally known and respected independent body that works to enhance best practices in the real estate industry. Rics is looking to implement the International Property Measurement Standards Coalition, which has been adopted by the Dubai Government and is hoped to be implemented in Abu Dhabi as well.
There is also the Middle East Council for Offices, which was formed in 2009 to promote quality in office environments, from design to occupation. The Council for Tall Buildings and Urban Habitat also looks to educate people through research, publications and events on the design, construction and operation of tall buildings.
There are many other groups and bodies that are enabling landlords, developers and occupiers to understand various best practices and how to incorporate these methods and processes to enhance the market as a whole. They will not deliver instantaneous results, but they will create a solid foundation which land owners, developers and occupiers can all work on in the future.
Knight Frank reports that the Abu Dhabi commercial market remains small, with an existing office supply of around 3 million sq m. The market is still dominated by three main sectors (government related, oil and gas, and construction and engineering), which are the key drivers of the economy at present. There is strong growth in aviation, hospitality and the service industries, which can kick-start the increased diversity in actual demand.
We continue to see larger international corporate relocations within the city, expanding their presence as they see growth in the emirate and the region in the coming three to five years.
New business locations are developing across the capital and creating clusters of industries, such as Sowwah Square, which is seeing a growing cluster of legal practices (36 per cent) and finance firms (21 per cent). The private sector continues to absorb new office accommodation, but with a smaller take-up of space of between 100 sq m and 500 sq m. Government-related enterprises still absorb large volumes of commercial space and typically lease units that are at least 4,000 sq m. Therefore, even though the market is seeing the delivery of a large number of new office buildings, vacancy levels remain moderately stable.
The Abu Dhabi Municipality has also undertaken projects to improve the overall quality of life, including upgrade work on older districts. This can be seen in Khalidiyah, where landscaping work and development of various amenities were undertaken, including new pedestrian-friendly streets, playgrounds and parking areas. These improvements will help the properties from these areas to compete with those in new master planned developments such as Al Maryah, Al Reem and others on Abu Dhabi Island.
How Abu Dhabi continues to diversify its economy will naturally impact the rate of absorption and the demand. The international business community's perception of Abu Dhabi is changing rapidly, in part because of global events being held in the emirate such as the Formula One Abu Dhabi Grand Prix, Volvo Ocean Race, Red Bull Air Race as well as concerts by several international artists.
Highlighting the growing reputation of Abu Dhabi and the rest of the UAE, the NatWest IPB Quality of Life Report has ranked the UAE as the third most popular country where British expatriates want to relocate to, after Australia and Canada. Other state-supported enterprises, such as Etihad Airways, will also be fundamental in securing new business and enhancing tourism activity by opening new trade routes, while creating opportunities in fast-growing areas such as the meetings, incentives, conferences and exhibitions sector and foreign direct investment.
Source: Matthew Dadd, Special to Property Weekly
Matthew Dadd Is a Partner at the Abu Dhabi office of Knight Frank. He has more than six years' experience in the Middle Eastern commercial real estate market