• Secondary commercial rates fell by 2 per cent in the first quarter of 2015, while prime commercial rents rose by 3 per cent
  • Residential rates continued rising, increasing 2 per cent over the quarter
  • Declines are expected in late 2015 and 2016 as the impact of lower oil prices begins to be felt

Rents in the Abu Dhabi commercial sector stagnated in the first quarter of 2015, according to a report by US real estate giant CBRE.

Average rentals for secondary office space were AED1,125 ($306) a square metre a year (sq m/y) in the first quarter, a 2 per cent fall on the fourth quarter of 2014.

However, prime office rents increased 3 per cent over the quarter, after remaining flat through 2014, according to the CBRE report. Average prime office rentals are now at AED1,900 a sq m/y, showing a highly tiered market.

“We are seeing a very different picture in the performance of prime and secondary commercial space,” says Matthew Green, head of research and consultancy for CBRE in the UAE. “There is a comparatively small offering of new grade-A buildings. Most of the upcoming supply is in a secondary location or is not the best quality.”

Total office supply has reached 3.8 million sq m, but there is a high level of uncertainty over Al-Maryah Island. The area was designated a financial free zone in 2013, and Mubadala has ceased leasing in two buildings until regulations are in place.

With 1.44 million sq m due to be delivered between 2015 and 2018, further declines are expected in secondary office rents.

“The impact of lower oil prices will not be felt until 2016, as budgets start to be reined in, especially from government departments,” says Green. “But there will be no negative impact for prime office space due to the lack of supply, as oil and gas companies will continue to bid for projects.”

CBRE expects Abu Dhabi’s GDP growth to slow to 3 per cent in 2015 due to its heavy reliance on oil, although spending will continue to the end of the year.

Residential rental rates increased by 2 per cent over the first quarter of 2015, compared with 3 per cent in the fourth quarter of 2014, the report continues.

A two-bedroom unit now costs AED141,000 a year, while a three-bedroom unit averages about AED168,500 a year.

It is unclear when a proposed rental matrix will introduced, after rent caps were removed in late 2013. Average rent increased by 12 per cent in 2014, while significant rises in utility rates have caused concern over costs of living.

Residents are moving outwards in search of more affordable rents, to areas such as Al-Reef Villas, where a second phase was announced in late 2014.

However, there is a small volume of new stock entering the market, with only 35,000 units expected by 2018. Existing units reached 246,000 in 2014.

“The rate rises have been evenly spread over the year and the market is not getting ahead of itself as in Dubai. There is less speculation and more end-user demand,” says Green. “We expect to see growth in the second quarter followed by stagnation and negative growth of less than 5 per cent due to the knock-on impact of lower oil prices.”

Residential sales were stable quarter-on-quarter, but have risen 14 per cent for villas and 12 per cent for apartments year-on-year.

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