MarketView Abu Dhabi, UAE

www.cbre.ae/uae_en/research

CBRE

Q1 2012

OVERVIEW

Quick Stats
Change from Lease Rates Office Residential Sale Rates Residential R id ti l Q1 11 Q4 11 Q1 11 Q4 11

Local government interve ention in Abu Dhabi remains a crucial force in driving the economic and real estate landscape with public se ector investment compensating for the falling inflow of foreign capital, and the s slowing pace of the property market. Despite global economic conditions, c the UAE posted a healthy 4.9% GDP y growth during 2011, sur rpassing earlier estimates. estimates Growth was particularly p supported by strong oil prices, increased oil output and expansion in the growing non-oil sect tor. The Abu Dhabi Municipa announced ality that total real estate tran nsactions (covering both mortgage and sales) es had reached AED43 billi during ion 2011, up 5% from the previous year. However, there are some concerns with e the accuracy of the data with discrepancies found betw ween the sales and registration dates which ultimately may have skewed the res sults. The Abu Dhabi Executive Council has e recently approved the co onstruction of a number of important infr rastructure and development projects fo 2012, or including new schools, villas for UAE nationals, the extension of key roads and the creation of indus strial zones across the emirate.

The Department of Transport (DoT) announced the construction of a AED2billion Abu Dhabi-Dubai motorway which is expected to create new points of entry to Abu Dhabi and enhance the overall connectivity between the two emirates, particularly in Khalifa Port Area, Wathba and Baniyas. Aside from acting as a direct demand generator for real estate products, planned government initiatives are also critical in creating new jobs, improving the standard of living, achieving long term social goals and enhancing the overall image of the emirate as a viable and attractive environment to conduct business activities. In parallel with developing its core infrastructure facilities, the government is also keen to position Abu Dhabi as a global centre for business events. A recent report from the Tourism and Culture Authority revealed a bullish outlook for the MICE industry which is already a key contributor to tourism arrivals in the country country. The expansion of the capitals hospitality and leisure/entertainment facilities will further boost the emirates credentials to host major international events, building on existing examples that include the Abu Dhabi Grand Prix and the Abu Dhabi Golf Championship Championship.

Hot Topics
The country witnessed a 4.9% g y growth in GDP during 2011 (IMF), surpassing earlier estimates. This came as a result of strong oil prices, higher oil outputs and expansion of non-oil sectors. The Abu Dhabi Municipality announced that total real estate transactions ( (covering both mortgage and sales) g gg ) had reached AED43 billion during 2011, up 5% from the previous year. Reports from the Tourism and Culture Authority reveal bullish outlook for business events industry with estimated 7% growth by 2020.

Abu Dhabi Office Rents Q1 2012 s, 2,500 Low Office Rents (sqm/ye ear) 2,000 1,500 1,000 500 0 Prime Secondary Prime Secondary Shell & Core
2012, CBRE Group Inc.

High

Cat A

OFFICE SECTOR Average office rents during Q1 were recorded at AED1,350/sqm/pa, reflecting a 4% decline from the previous quarter. However, rents for prime offices remained stable with Aldar HQ, Etihad Towers and International Tower e quoting rates from below AED1,800/sqm/pa, whilst at Sow wwah Square, asking rates are found from around AED2,000/sqm/pa. The completion and release of new quality office accommo odation in International Tower, Nation Towers and Etihad Towers will undoubtedly broaden the options for occ cupiers and inevitably heighten competition amongst landlords. As more supply becomes available ,we see the rental gap widening further between prime spaces and inferior products and those offerings situated within second dary locations, as a flight to quality continues. As part of a more pragmatic approach to secure blue-chip commercial occupiers, the more sophisticated p landlords are starting to utilise increasingly flexible payme schemes and extended rent-free periods as part of ent their wider incentive packages a trend that has been grow packages, wing over the past year year. It is understood that the government has now officially notified commercial villa occupiers mandating them to vacate premises at the end of their current lease term, with the exception of a few select areas which have been given temporary dispensation. This action by the Abu Dha Municipality and the Department of Economic abi Development is intended to enforce the previously announc ced ban on commercial occupiers taking space in undedicated office accommodations. It is hoped that the m move will help to prop-up local demand for office space amidst challenging market conditions, although this type o move typically affects the Class B and C office sectors of more than Class A A. RESIDENTIAL SECTOR Average residential rents declined by 3.5% from the previous quarter and 18% year-on-year as the sheer number of newly completed units took its toll on both rental rates and occupancy, with deflationary pressures anticipated to continue across the capital as additional stock is delivered over the next 12 months. For strata developments, rental fluctuations are often found to be even more acute with the presence of multiple d landlords i h l dl d in the same building creating fierce competition. O b ildi i fi ii Owners are also pushed to lease properties at lower l h d l i l rates in order to prevent the long void periods occurring, subsequently benefitting occupiers across the market. The impact of the sustained growth in overall housing stock is strongly reflected in the continued decline of lease k rates, which has also led to the emergence of reduced tena loyalty amidst more abundant and affordable ant options in the market. With 23,000 new units to be deliver in 2012 alone, residential inventory in the capital is red set for significant growth. Despite inevitable supply and de emand imbalances, overall rental fluctuations are anticipated to be more modest than observed during the o onset of the market downturn.
Abu Dhabi Housing Rents (AED/unit/pa)
MarketView Abu Dhabi, UAE w

180,000 150,000 150 000 120,000 90,000 60,000 30,000 0 Studio 1 BR Off-Island L Off I l d Locations* ti * 2 BR Abu Dhabi I l d Ab Dh bi Island
Q1, 2012

Average rents in the two sub-markets vary by around 30-55%, with location, product quality and facilities the prim mary determinants.

Hous sing Rents (AED/unit/pa)

3 BR

Page 2
2012, CBRE Group Inc.

MarketView Abu Dhabi, UAE w

RESIDENTIAL SECTOR (continued) Abu Dhabis expanding residential offer is providing tenants with a more abundant array of new good quality products. prod cts An increasing n mber of high-end residential prop number high end perties are now being completed in areas along the Corniche, Saadiyat Island and also at Raha Beach. Upcomi projects include Nation Towers and Landmark ing Tower, adding to recently delivered luxury residences from Et tihad Towers and St Regis Apartments. The transactional market remained constrained during the fir quarter with sales prices for freehold units on Reem rst Island and at Al Raha Beach starting from around AED 950/ /sqft, whilst sale rates for Al Reef Downtown were posted from as low as AED475/sqft. Prices for completed properties remained relatively stable, wh those still in the early stages of construction hilst continue to fall away amidst weak demand for riskier off-plan products. n In the hope of creating more market interest, a number of fin nancial intermediaries have announced reduced mortgage rates, whilst many developers are now offering flex xible payment terms and more creative products (e.g. rent-to-own schemes) in order to attract buyers. Market trans sactions are being driven predominantly by occupiers, with very low investment activity being recorded. OUTLOOK With a significant inflow of new properties occurring during a very short period, occupiers continue to enjoy a growing spectrum of choice across various locations and bud dgets. However, the outlook for the capitals landlords is not so upbeat. Heightened competition in the m marketplace means owners face a growing battle to preserve healthy occupancy rates whilst also maintaining sati isfactory levels of rent. Dependant on how the capitals property stock is managed a delivered, short term oversupply situations will be and inevitable, which in turn will directly impact upon sales and re ental performance. For example, the delivery of a large number of units in the R h B l b f it i th Raha Beach market i th last quarter led to notable localised rental reductions, h k t in the l t t l dt t bl l li d t l d ti despite the area remaining a popular destination amongst te enants. Further regulatory developments are still keenly awaited, and although a number of draft laws are believed to be d under review no timeframe has been identified for their imple ementation. Given growing competition regionally, it is more imperative than ever that suitable measures are unde ertaken to ensure that the market remains competitive and attractive for new investment. CBRE GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE Abu Dhabi Research T Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consu ultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the o globe. For more information regarding this ViewPoint, p g g , please contact: e EMEA Research Matthew Green Head of Research & Consultancy, UAE Research & Consultancy CBRE, Middle East Building 6, 8th Floor Emaar Square Dubai, UAE t: +971 4 437 7200 e: matthew.green@cbre.com Arlene Jimenea Senior Researcher, UAE Research & Consultancy CBRE, Middle East Sons of Darwish Building 2nd Floor, 201, Zayed 1st Street PO Box 53585, Abu Dhabi | UAE t: +971 2619 7800 e: arlene.jimenea@cbre.com

Q1, 2012

Page 3
2012, CBRE Group Inc.