Abu Dhabi office rents to decline further

Office rents in Abu Dhabi are expected to fall further this year as the office market continues to be hit by the mergers of some of the capital’s largest companies, and lay-offs in the oil and gas sector.

According to research by the property broker CBRE, office rents in Abu Dhabi are set to fall by about 5 per cent this year.

CBRE estimates that rents for offices in older, less well-maintained buildings could fall by between 5 and 10 per cent this year.

The broker calculates that these secondary office rents fell by 8 per cent during 2016 to about Dh1,000 per square metre as companies reliant on the oil and gas sector or the Federal Government suffered the effects of cutbacks after the slump in global oil prices.

Office rents for the newest, best located and maintained office space in Abu Dhabi fell by 3 per cent last year to an average of Dh1,800 per sq metre. CBRE predicts that these primary office rents will again fall by up to 5 per cent this year.

And CBRE says that tenants are saving more money than these headline rents would suggest as landlords are also offering more attractive incentives to tenants to occupy their buildings, including rent-free periods of up to six months.

“The full effects of the oil price slump on the Abu Dhabi office market are not visible as yet,” said Matthew Green, the head of research and consulting at CBRE’s Dubai office. “Office markets tend not to move very quickly as tenants take long leases. However, we are seeing companies in the capital downsizing and attempting to sublease their excess space. We can expect to see further declines in rentals during the course of 2017, with no imminent recovery in performance anticipated.”

Company consolidations this year include Mubadala’s merger with Ipic and National Bank of Abu Dhabi’s merger with FGB, but CBRE said some companies across the capital have already been laying off staff and reducing their office space in an attempt to cut costs.

Unlike housing rents in Abu Dhabi, office rents – often seen as a bellwether of the city’s economy – remained fairly static in the years following the global financial crisis as a glut of new space hit the market in areas such as Al Maryah Island and around the Abu Dhabi National Exhibition Centre.

In November, the property broker Asteco said that according to its calculations, office rents in Abu Dhabi had fallen to their lowest in more than eight years, wiping out any rent increases made by landlords in the years after the global financial crisis. It estimated that office rents stood 72 per cent lower than they had been at their market peak in late 2008.

lbarnard@thenational.ae

Follow The National’s Business section on Twitter