Abu Dhabi experiences rising activity in the community retail segment
The contribution of wholesale, retail trade, hotel and restaurants accounted for around 12 per cent of total GDP in Abu Dhabi, according to the Q3 2017 Abu Dhabi MarketView by global real estate consultancy firm CBRE.
“Whilst 2017 has not seen the delivery of any major new retail facilities, there is rising development activity in the community retail segment, with multiple new centres being built as part of mixed-use masterplan developments, and within the Emirate’s satellite towns, as the government strives to provide better quality facilities and more conveniences to the local population,” said Mat Green, Head of Research & Consulting UAE, CBRE Middle East.
Major upcoming malls include Maryah Central and Reem Mall, both of which are regional sized centres, with GLAs of 146,000 square metres and 200,000 square metres respectively.
The Emirate will also see the handover of Al Falah Medical Mall in Khalifa City during Q3 2018. The scheme will offer a holistic wellness provision, and represents the first concept of its kind in the UAE.
During the quarter, prime rents for typical line shops (mall-based) ranged between AED2,500 for 3,200 square metres per annum whilst similar units within off-island locations had rents between AED2,000 for 3,200 square metres per annum.
Prime street retail shops in central locations such as Khalifa, Corniche, Tourist Club Area, Hamdan and Khalidiya, have annual rentals of between AED 2,200 to AED 3,500 per square metre per annum in comparison to the AED 1,000 to AED 2,500 per square metre per annum observed rents for similar retail spaces in secondary locations. With demand levels remaining subdued, and with consumers remaining more cautious with their spending, there is likely to be further pressures felt on both rentals and occupancy rates in the coming quarters.
According to the report, despite observed improvements in overall hotel guest numbers, the hospitality sector’s general performance indicators such as occupancy, ADR's and RevPAR all remain down.
Year to date occupancy rates to September 2017 equated to 69 per cent, down 2.1 per cent from the 70 per cent achieved in the period year-to-date September 2016. In the same period, ADRs dropped by just over eight per cent from AED 437 per room per night in September 2016 to AED 400 per room per night in September 2017.
With declines recorded in both occupancy and ADR, the impact on RevPAR was accentuated, with rates falling by 10 per cent from AED 307 per room per night to AED275 per room per night.
“With demand from the corporate sector remaining muted, strengthening of domestic visitor numbers and further expansion of MICE initiatives have become increasingly important as hotels look to improve upon the current weakening revenue performances,” said Green.
Abu Dhabi’s average residential rentals experienced further downward pressure, with a three per cent quarterly drop decline, resulting in a 11 per cent decline on an annualised basis. However, the market is witnessing a somewhat mixed performance, with declines of one to six per cent recorded depending on the specific location. As a result, landlords are being forced to become more flexible in their negotiations with tenants, in order to lessen the potential void risk and strengthen tenant loyalty.
On average, annual rentals for upper-middle and high-end residential units ranged from AED 80,000 to AED120,000per annum for one-bedroom apartment units, and AED110,000 to AED160,000 for two-bedroom units.
“Amidst falling rental prices, there remains an apparent shortage of housing units targeted towards the dominant low to middle income segments of the population. Whilst a number of mid-market projects have been launched and subsequently delivered, the size of these developments remains insufficient to cater to the overall market demand for affordable housing options,” said Green.
In terms of the sales market, values have continued to soften, dropping by nearly three per cent on a quarterly basis and nine per cent year-on-year. The sustained downside in sales rates, reflects the combination of weak transactional demand and overall negative market sentiment.
Abu Dhabi’s office sector continues to experience a softening of market conditions, as a contraction of employment growth and weak demand fundamentals add further pressure to both rental and occupancy rates.
Consequently, occupiers remain cautious with their capital expenditures and new office requirements have become more limited as a result. There is also sustained evidence of tenants sub-leasing excess accommodation, as they strive to reduce operational overheads.
Average prime office rentals equated to AED1,675 per square metre per annum during Q3 2017, reflecting a nine per cent declined from same period last year, whilst secondary office rents average AED850 per square metre per annum, which is around 15 per cent lower than during Q3 2016.
“There were no major new office completions observed during the quarter, meaning total existing stock remains at around 3.96 million square metres. As a result, there is now around 0.4 million square metres are expected to be completed by 2019. However, in the current environment, there are likely to be further delays in delivery timeframes, as developers try to coordinate completion timings to better align with demand levels,” concluded Green.