The latest real estate report from Middle East specialists Cluttons, shows that approximately 3,000 residential units have been released into the market in the third quarter of 2012, most of which represent apartment developments. Take up of projects such as TDIC’s St Regis apartments on Saadiyat Island have proved popular, highlighting demand for well planned developments offering a community lifestyle with high end facilities.

However, the real estate firm points out that the addition of stock to an already lethargic market has caused rental and capital values to falter. Capital values of apartments have fallen some 6.8% since the third quarter off 2011 and the villa market is down 3%.

It adds that the release of an additional 38,000 units by 2014 undoubtedly will increase the competiveness of the market and force landlords to offer lower rents and more flexible contact terms.

Elsewhere the government’s continued investment in major public construction projects such as Khalifa Port which opened in September, and the rapid development of projects in Saddiyat, Al Reem and Yas Islands is boosting the industrial sector. The Abu Dhabi government has also focussed on leisure and retail as a means to start drawing attention away from neighbouring Dubai.

In the industrial sector, the official opening of the AED 26.2 billion Khalifa Port is set to change the industrial landscape in the region. Khalifa Port’s container terminal has a capacity of 2.5 million container units a year, with an additional 12 million tonnes of general cargo. The Khalifa Port acts as the gateway for Kizad Industrial Zone Abu Dhabi (KIZAD), with the objective of the area to support the growth of the Abu Dhabi economy under the 2030 economic vision.

Forty companies have reportedly signed on long term lease agreements for Free Zone and Non Free Zone land plots.
In addition, warehouse units at Skycity, Waha Land and Abu Dhabi Airports Company have also been completed, bringing further supply on to the market. Across the capital industrial rents have remained stable since the first quarter of 2012 at AED46 per square metre per annum.

The retail market is also due to change dramatically over the next 12 to 18 months as two major developments, Yas Mall and Deerfields Mall, are released along with the extension of Al Wahda mall and the release of Emporium at Central Market, bringing 300,000 square metres of new retail space to market by the end of 2012.

The two developments which are presently competing directly for international brand interest are Etihad Towers and Sowwah Square, the former of which has secured Tom Ford, Chloe and the first Paul Café in the capital and is 80% pre-let. Currently, prime mall space is achieving top rental rates of AED3,500 to 4,000 per square metre per annum as opposed to an average of AED2,800 per square metre per annum in most retail spaces.

Office rental levels have remained static over the past 12 months, with net prime rents achieving AED1,800 per square metre per annum. Headline rents remain higher but landlords are offering rent free incentives in the established Grade A developments of as much as six to nine months for a five year lease. Again in this sector, Etihad Towers and Sowwah Square are both leading well in a still suppressed market.

Cluttons foresees that in 2013 industrial rents will remain stable across Abu Dhabi and that further opportunities and growth will result from the launch of KIZAD. Retail and office space prices will depend on the development with tailored, well serviced buildings maintaining their prices while others may stagnate or soften. Residential rental values on the other hand are likely to soften further as a result of the huge increase of stock coming online in the next two years.

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