Capital builds up office space

Beneficial time to build as construction materials are cheaper and margins lower.

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While property development slows in the capital for the big corporate property companies, Abu Dhabi's sovereign wealth funds are developing towers that will bring online another 102,000 square metres of high-end office space. Many of the buildings are not expected to be finished until 2012 or 2013 but consultants said government-owned developers should benefit from building at a time when construction materials are cheaper and contractors more willing to accept lower margins.

But landlords will also face increased competition for tenants. The new office space is part of an expected 1.2 million sq metres of office supply entering the market by the end of 2012, bringing the total supply to 3.2 million sq metres. A portion of the space in these buildings will be taken up by the sovereign funds, which together hold and invest tens of billions of dirhams of Abu Dhabi and federal wealth.

Much of the remaining space will be let out to other companies. "Some of these buildings will be wholly owner occupied, while others will have surplus space to be leased to third parties," said David Dudley, the head of the Abu Dhabi office of the consultancy Jones Lang LaSalle. "In an increasingly competitive market, with emerging oversupply it will be critical for these groups to have a solid leasing strategy for the surplus space."

Almost all of these buildings are located between 15th Street and Al Saada Street near Muroor Road, except Invest AD's new headquarters at the Abu Dhabi National Exhibition Centre. Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, is already located on 15th Street and Muroor Road in the blue-green glass and stone Al Mamoura building. Many of the new buildings have innovative designs.

The twin, cylindrical buildings of the Abu Dhabi Investment Council (ADIC) will feature a "diaphanous screen that envelops the most exposed aspect of the building in the form of a dynamic mashrabiya [a type of projecting oriel window enclosed with carved wood latticework], opening and closing in response to the sun's path", according to a description from the website of the architect Aedas. The International Petroleum Investment Company's headquarters on Muroor Road resembles several thin buildings leaning against each other.

Some of the planned buildings' designs have not been announced yet, such as a pair of towers that will house the Emirates Investment Authority, a Federal fund, and the Khalifa bin Zayed Foundation. They will be located adjacent to ADIC buildings. The glut of office space coming on to the Abu Dhabi market is expected to cause many major companies to relocate or negotiate rents. Some tenants will shift to a single building to consolidate while others, including several international law firms, are looking to upgrade to higher-quality space in buildings such as Sowwah Square in the new central business district, Sky Tower on Reem Island or the Capital Plaza tower next to the exhibition centre.

But the amount of space coming online is not equal to the growth in demand, which will lead to a drop in rental prices and the emergence of more defined markets for different quality spaces, said Harry Goodson Wickes, a leasing agent at the property consultancy Cluttons. "There is going to be an oversupply problem," Mr Wickes said. "This will cause big rental changes and there will be movements of companies across the city."