Nowhere for SMEs to call home in Abu Dhabi

There is little middle ground in Abu Dhabi’s commercial property market. Small businesses and start-ups are faced with either shelling out for space in a glitzy, pricey high-rise or moving into a poor-quality converted housing unit.

Office space in Abu Dhabi is hard to find and priced in a narrow band, creating logistical and financial strife for the city’s small businesses. Rich-Joseph Facun / The National

Take a walk any evening along the Abu Dhabi Corniche this time of year, and you are bound to see groups of tourists snapping selfies against the city’s impressive skyline. With the glowing, wavy facade of the Abu Dhabi Investment Authority Tower, the graceful curves of Etihad Towers and the impressive sky bridge of Nation Towers, the capital is home to some of the most distinctive office blocks in the world.

But while property developers in the city spend their time and resources creating bigger and more impressive edifices, many of the city's most numerous tenants — small businesses — are struggling to find anywhere to rent.

Andrew Covill is an estate agent attempting to set up his own business in the capital under the Henry Wiltshire International brand. He is working from serviced office accommodation near Khalifa City while he waits to move into new space in Aldar’s headquarters building.

“For us the process of finding an office wasn’t easy,” Mr Covill says. “If you want anything that is good quality then the rents can be quite high. Parking is a huge problem everywhere in Abu Dhabi and a lot of the places we looked at didn’t have parking.

“Another problem is that you can’t get a trade licence without having an office and you can’t get an office without a trade licence, so you really need to take serviced office space first, which can add to the costs.”

Across the city, property agents agree that although small businesses and start-ups make up the largest number of tenants by demand, the amount of office space suitable to house small businesses remains scarce.

According to the latest available figures from Asteco, average annual office rents in the capital range between Dh1,700 per square metre for top-notch space in the newest office buildings to Dh600 per sq metre for poor-quality space in older buildings.

Compare this with Dubai, which offers a far broader range of accommodation and where Asteco says offices in low-cost areas such as Dubai Investments Park start at Dh50 per square foot (or Dh538.2 per sq metre) and stretch to a maximum of Dh300 per sq ft (Dh3,299 per sq metre) at the DIFC.

“When it comes to new supply, a lot of it is not satisfying tenant demand,” says Paul Maisfield, the chief executive at MPM Properties, the property management arm of Abu Dhabi Islamic Bank.

“For small companies taking the smallest amounts of office space, we find they tend to look for residential units that have been converted to commercial.

“So for the rents, landlords tend to quote the equivalent apartment rent rather than a rent in square metres.

“There is a tendency with these sorts of grade-C office buildings, which have been historically residential for landlords, to still view their investment as a one or two-bedroom apartment, not a commercial entity. You get them all over the city, especially in the older areas such as the Tourist Club or Tanker Mai. And they tend not to come with parking, which is an added expense for these businesses and their staff,” says Mr Maisfield.

“So with housing rents having increased a lot over the past year, tenants can end up paying rents of up to Dh100,000 a year,” Mr Maisfield adds. “It’s an unfortunate situation, but for small amounts of space there really isn’t a lot of choice. If you pay per square metre, rents can be anything from Dh900 to Dh1,400 per sq metre, but they tend to average out at about Dh1,200 per sq metre.”

Of course, Abu Dhabi does have some purpose-built developments for small businesses. There is the 8,000 sq metre start-up incubator building at Masdar City for a start, which was opened in 2013 to provide space for specialist start-up technology companies. Further into the city, the media free zone twofour54 also provides specialist studio-style office suites for media companies.

But agents say this sort of stock is either too expensive or too specialised for most of the businesses looking to take space.

Instead, they say many start-ups in the UAE look to establish themselves in Dubai instead, where there is more choice and where there is a range of accommodation which caters to different price points.

They point to the work of developers such as Tecom,which is developing the Dubai Design District — D3 for short — a 21 million sq ft campus that offers the sort of small office space, boutiques, galleries, workshops and artists’ studios that attract entrepreneurs. It says it will create a lively space for “the kind of credible, cutting-edge creative events more often found in London, New York, Paris and Milan”.

Although much scepticism surrounds the chances of actually achieving this outcome, whatever Tecom creates is likely to exceed the sort of converted housing blocks used by many small businesses in Abu Dhabi, where even waiting for lifts can take far longer than one would expect in an office block simply because the block was not designed for commercial usage.

“There continues to be a real need for small, cost-effective office space in Abu Dhabi, yet there are limited options available,” says David Dudley, the director of operations for the Middle East and North Africa at the property broker Jones Lang LaSalle.

“Demand remains strong from start-up businesses and companies wanting a satellite office in the capital,” he says.

“The majority of options are either high-grade office space that is expensive and not easily sub-divisible, or poor-quality secondary stock in Abu Dhabi’s downtown area, which are generally converted residential buildings.”

“There is real appetite from small businesses to acquire small suites of fitted-out office space at cost-effective rents and service charges,” Mr Dudley adds.

“This presents an opportunity for developers to construct mid-rise office buildings offering functional accommodation and flexible floorplates.”

Back in his serviced office space, Mr Covill is still going through appraisals for his new offices.

“I think once we’ve actually got the space we should be fitted out within a month,” he says.

“Everything takes a long time, but we’re getting there.”

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