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Abu Dhabi Real Estate Market Showing Continued Decline With The Short Term Reduction In Demand Partly Offset By Controlled Supply
(19 October 2016)

 

JLL, the world's leading real estate investment and advisory firm, today released its Q3 2016 Abu Dhabi Real Estate Market Overview report which assesses the latest trends in the office, residential, retail and hotel sectors.

The latest market summary report discusses ongoing weak demand across the office, residential and retail sectors which has been evident since the decline of oil prices at the end of 2014 and continues to impact government spending and general sentiment. However, amidst general spending cuts there is increased evidence of continued government investment in Abu Dhabi’s mega tourism projects and overall positive demand in the hospitality market.

Commenting on the hospitality sector, David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA, said: “The general trend for Abu Dhabi’s hospitality market has been positive growth of tourism demand being offset by a decline in corporate demand and new supply completions. In balance this has resulted in a slight increase in demand reducing pressure on occupancy rates but a decline in average room rates.”

The report highlights increased supply with two new hotel openings adding more than 400 rooms to the market this quarter – the Marriott Downtown Abu Dhabi at Bloom Central and Gloria Downtown Hotel. Furthermore, the serviced apartments sector witnessed the delivery of the Marriott Executive Apartments at Bloom Central. A further 1,500 rooms are expected in the capital by the end of the year from three large hotel openings - Grand Hyatt Hotel and Residence Emirates Pearl, Millennium Bab Al Qasr and the Marriott Al Forsan.

Hotel occupancies in Abu Dhabi have remained largely stable at 70% this quarter with a marginal decline of 2.3% compared to the same period last year. According to the report, the hospitality industry’s diversification towards leisure tourism continues to gain traction and has reduced pressure on occupancy rates.

Despite increased supply and healthy occupancy rates there is continued pressure on average daily rates (ADRs) which declined by 10% compared to the same period last year.

 

David Dudley added: “The medium term hospitality market outlook remains highly positive due to wide-ranging government initiatives including the expansion of Abu Dhabi International Airport and Etihad Airways, further improvement of Abu Dhabi’s leisure offering, the hosting of world-class events and major campaigns by

Abu Dhabi Tourism & Culture Authority to promote Abu Dhabi internationally.”

Overall, the report highlights the continued decline in performance of Abu Dhabi’s real estate market across all sectors.

David Dudleycommented: “Ongoing cost cutting and downsizing in the oil and government sectors have continued to reduce demand across all sectors of Abu Dhabi’s real estate market.

“While supply remains under control, increasing vacancy rates are placing downward pressure on residential rents and sales prices. Residents in Abu Dhabi are increasingly looking for cheaper and smaller options owing to further job cuts and reduction in employment allowance and benefits. This quarter an additional 1,160 units were delivered in Abu Dhabi. Rents are expected to further decline as supply will continue to increase with another 3,000 units expected by the end of 2016.”

On the office market David Dudley added: “We are witnessing a similar trend in the office market, rents continue to decline for both Grade A and Grade B buildings as oil and government entities consolidate and downsize and therefore increase vacancy rates.”

According to the report, the government is considering the merger approach in an effort to further combat economic challenges. “Many of Abu Dhabi’s government entities are going through a period of re-structuring in response to tougher economic conditions.  Recently announced mergers include sovereign wealth funds (Mubadala and IPIC), banks (NBAD and FGB), ADNOC subsidiaries and government entities. 

“More mergers are expected to be announced later this year leading to further rationalisation of office space. These mergers, combined with general spending cuts have impacted population growth and disposable incomes – leading to a decline in residential and office demand and retail spending,” added David Dudley.

Commenting on the retail market he added: “While real estate rentals are largely declining, retail rents have actually remained stable this quarter and there are minimal mall vacancies. To keep down vacancies, we’ve seen mall operators continuing to offer incentives to attract retailers but the reduction in consumer retail spending has continued throughout this quarter.

“The government’s continued investment in Abu Dhabi’s leisure tourism offering is expected to boost retail spending in the long run with increased numbers of tourists but in the short term a reduction in corporate hospitality is still affecting retail spend.”   



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