ABU DHABI // Older office buildings in Abu Dhabi are facing rising vacancy rates as new, higher quality options become available and businesses downsize because of the economic downturn. A prime example is the Blue Tower, an older building on Sheikh Khalifa Street that is home to financial companies and law firms. Nearly half the building could be empty this year as tenants reduce their size or move out, according to a flyer advertising available space.
"New buildings are coming up thick and fast," said Piers Barttelot, a national director at the property consultancy Jones Lang Lasalle in Abu Dhabi. "At the same time, there is some consolidation and downsizing from companies. It's putting pressure on the market." Because of this, Abu Dhabi will experience the emergence this year of two property markets: one for older, lower-quality buildings and another for the new, "class A" office space. Until now, prices were in the same range across the market.
"It will become a two-tier market," Mr Barttelot said. The top-quality space will probably remain in the range of Dh2,500 (US$680) to Dh3,000 per square metre, while the lower grade space could drop more than 30 per cent, from Dh600 per sq metre to Dh400. Andrew Goodin, an associate director at the property consultancy DTZ, said the trend was mirroring massive changes in the residential market where prices had dropped by as much as 50 per cent in a year.
"It's only the start of the trend in commercial," he said. "That trend will extend as new supply comes through with completion of buildings." Among the buildings coming online are the coin-shaped Aldar Headquarters building near the airport, the Sun and Sky Towers on Reem Island and the Etihad Towers near the Emirates Palace hotel. One remaining problem for office developers is that demand for space is relatively low while available office space in Abu Dhabi is expected to increase by 19 per cent this year to 2.13 million sq metres, analysts said.
Interest in the Aldar Headquarters was intense a year ago. Now, the 23-storey building is less than half leased and Aldar is interviewing companies to act as a leasing agent for the building to drum up more interest. "When you launch a project and it's oversubscribed, it's merely interest," said Rami Nasser, the director of sales and commercial leasing at Aldar. "Between then and now many things could have changed. We believe it is the only class A office building that is on the market today. There is a shortage of this kind of space in the market and we are providing it."
Commercial property brokers said they believed many of the capital's top businesses would shift to newer, more luxurious office space, but there were other factors driving demand. Businesses that were new to the UAE were especially looking for small spaces and short-term leases so they could "test the water", said Adel Hamaizia, the business development manager of Re-Max Abu Dhabi, a real estate company. "New businesses want a clean get-out clause in case things don't work out."
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