Demand for office space in Abu Dhabi is picking up as companies take advantage of falling lease rates to move into higher quality buildings, CB Richard Ellis (CBRE) reports.
The drop in rates is driving a "flight to quality", CBRE said in its analysis of the first quarter, released yesterday.
The interest is coming from companies with existing operations in Abu Dhabi, not companies moving into the market, said Rupert Bowen-Jones, the senior surveyor for CBRE.
"The demand in the market is latent demand coming from companies expanding," Mr Bowen-Jones said.
An unprecedented surge in office construction is giving tenants more choice. The supply of office space in Abu Dhabi is expected to reach 3 million square metres by the end of the year, a 35 per cent increase from last year, CBRE reported.
Many companies are waiting for new towers to be completed before making a move, said Matthew Green, the Middle East head of research for CBRE.
"In the second half of the year we should start to see a lot of movement" of tenants looking for new space, Mr Green said. "I think we will see a lot of churn in the market."
With demand focused on the top space, rents have started to stabilise in prime buildings at more than Dh2,300 a sq metre, 40 per cent above the overall average in the city of Dh1,650 a sq metre, according to CBRE research.
Only a few of the new buildings are considered "Grade A" buildings, including Al Sowwah Square, Aldar HQ and International Tower in Capital Centre.
But rents are continuing to slide in older buildings. The average office space on the low end of the market is closer to Dh1,100 a sq metre, CBRE said. Office rents in the capital peaked at an average of more than Dh4,500 a sq metre in the third quarter of 2008, CBRE reported.
Landlords are offering longer-term deals and incentives such as free rent for a short period to woo tenants.
"With massive new supply looming, landlords are also seeking greater security amidst fears of rising vacancies," the consultancy reported.
International demand is expected to pick up through the year but it hasn't happened yet, Mr Bowen-Jones said.
"There are companies setting up here but these companies typically want smaller space," he said.
The CBRE data is in line with reports from other property companies. Cushman & Wakefield reported last week that the average office rents in Abu Dhabi have fallen 29 per cent since a year ago.
