Abu Dhabi’s office market is starting to feel the strain of lower oil prices with rents falling 4 per cent in the third quarter of the year.
According to the property broker CBRE, average office rents in the emirate – a good indicator of the city’s economy – slipped to Dh1,075 per square metre a year in the three months to the end of September 2015, down from Dh1,118 per sq metre during the same period a year earlier.
During the quarter, Brent crude oil averaged about US$50 per barrel, down more than 50 per cent from $102 per barrel a year earlier.
CBRE said the drop in oil prices had squeezed tenants in the oil and gas industry as well as the public sector, who make up the majority of the Abu Dhabi market, leading to a slump in demand for office space in a market that had never really recovered from the global financial crisis.
“With the oil and gas and public sectors serving as the primary office demand generator, demand for office space from both new occupiers and expansion of existing end-users has started to slow,“ said Matthew Green, the head of research in CBRE’s Dubai office. “These conditions have also had a knock-on effect on other parts of the office sector, including some professional service companies, such as law firms, which rely heavily on work from government and government-related institutions.”
However, Mr Green said that the price falls were mainly felt in the city’s ageing and inferior quality office space.
Prime office rents remained stable at about Dh1,900 per sq metre on average.
CBRE said that the city’s highest office rents were found at Mubadala’s Abu Dhabi Global Market Square, where asking rents start from Dh2,900.
However, the developer had shelved plans to lease the 183,000 sq metre block until the city’s financial free zone opened.
Mr Green said that the lack of available top quality office space in the city meant that in future prime rents were likely to remain more resilient to the economic slump, while the secondary market could be subject to further falls in rents.
Abu Dhabi’s office market was hit hard by the global financial crisis. Prime office rents fell dramatically from about Dh4,750 per sq metre in 2009 as the 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 Abu Dhabi Global Market Square, the Capital Centre and along the Corniche.
lbarnard@thenational.ae
