Pressure mounts on office rents in Abu Dhabi

Vacancy rates for Abu Dhabi office space is increasing, meaning more deals are available for companies. Watch video

More than a fifth of office stock in Abu Dhabi is empty, creating opportunities for companies looking for space in the capital. Lee Hoagland / The National

More than a fifth of office stock in Abu Dhabi is empty, creating opportunities for companies looking for space in the capital, according to a report released yesterday by Jones Lang LaSalle.

Video: Property drop

Office vacancy rates are up to 20 per cent in Abu Dhabi as new units come on stream, reports Kevin Brass.

The average rent for Grade A office space in Abu Dhabi has dropped nearly 54 per cent since the end of 2008, from Dh3,800 (US$1,034) per square metre a year to Dh1,750 a sq metre, according to the report. Asking prices are down 20 per cent in the past year.

"With 20 per cent vacant, it means there is a lot more choice," said David Dudley, the head of the Abu Dhabi office for Jones Lang LaSalle.

But there have been few transactions in recent months as companies remain on the sidelines waiting for the next wave of office projects to be completed, agents say. An additional 1.1 million sq metres of space is scheduled to come on to the market by the end of 2013, a 50 per cent increase from current supply, Jones Lang LaSalle reported. The increase in supply is expected to push up the vacancy rate and put further pressure on lease rates.

"Tenants aren't really moving until all the Grade A stock is on the market," said Rupert Bowen-Jones, the senior surveyor for CB Richard Ellis. "We're going to start seeing more movement next year as more space comes on to the market."

To counter the trend, landlords are offering prospective tenants free rental periods and discounts on customising space.

Abniya Properties, the owner of the recently completed Salam HQ, changed the strategy for marketing the 19-storey office building on Salam Street.

Instead of marketing unfinished large spaces known as "shell and core" space, the building offers smaller spaces ranging from 65 sq metres to 104 sq metres, fully fitted out and ready for occupancy.

"We are going more for the boutique market," said Ghassy Bayni, the owner of Abniya. "Getting people to commit to 65 sq metres to 104 metres is not as difficult."

Mr Bayni is asking Dh2,200 a sq metre for the smaller spaces, while larger areas in the building rent for Dh1,900 a sq metre.

Inquiries have been robust and he has rented two of the smaller spaces to international companies.

"I'm not seeing the negativity I keep reading about," said Mr Bayni. "There is 20 per cent vacancy, but the question is where is that vacancy? It's not in downtown Abu Dhabi."

Most of the new projects scheduled for completion in the next year are on Sowwah and Abu Dhabi islands, where demand for top quality office space remains high, agents say.

Government entities are the largest occupiers, representing 24 per cent of the market, Jones Lang LaSalle reported, adding that state-owned companies tended to focus on buildings specifically built for their needs, creating little impact on the private sector.

Demand for space in private buildings primarily stemmed from "existing occupiers upgrading their space in the flight to quality", the consultancy said.

The gap between top buildings and lower-quality buildings was likely to widen in the months ahead, Jones Lang LaSalle said. Lower rents also made Abu Dhabi office buildings more competitive with competitors in Dubai.

"It means [companies] can expand more cost-effectively," Mr Dudley said.

Jones Lang LaSalle's findings are corroborated by other recent studies of the market.

Market conditions remained "firmly in the favour of tenants", the estate agency Knight Frank said in a recent report.

"Now companies have the choice of accommodations that meet their needs and budgets," said Matthew Dadd, the senior surveyor for Knight Frank. "It allows them to do business as they would in any other international city."