Office space has grown by 50 per cent since 2000.
As Abu Dhabi is the federal capital of the UAE and the seat of government it is no surprise that the demand for property in the commercial sector is rising. With the Abu Dhabi government's stated objective to diversify its economic base and move away from a reliance on the energy sector — new industries, community facilities and attractions are being established within the emirate.
The Abu Dhabi office sector has experienced steady growth since 1978 peaking in the early 1980's when the supply of office space doubled consecutively in 1982 and 1983. According to Colliers International, since 2000 office supply has grown by 50 per cent to a total of 460,000 square metres of gross floor area (GFA). This growth in office supply will accelerate in the next five years as the new master plan for the city takes shape.
New commercial buildings are being established on the main island and commercial projects are currently being developed in the new Abu Dhabi with construction commencing on sites such as Reem Island and Al Raha Beach.
The recently published blueprint development plan for Abu Dhabi produced by the government in association with an international team of urban planning experts, Plan Abu Dhabi 2030, has identified the establishment of a new Central Business and Financial District.
This will be centred on Al Suwwah Island spreading into the adjacent edges of Mina, Al Reem and Abu Dhabi Island. Al Suwwah, a natural island has been expanded to provide a critical mass of development area that will be connected to the city and Reem Island by at least ten new bridges allowing for easy traffic flow. The current office capacity of the Central Business District is 1.50 million square metres and the plan anticipates the following increases (see Table 1):
This is a total of 2.1 million square metres and does not include commercial space within the Capital District, Grand Mosque District and Lulu Island District all of which will offer substantial additional commercial and retail space.
Who will use the space
A question we are asked frequently is who will use this space?
Currently we are experiencing an increase in demand for both commercial and retail space in the city. This demand is coming from multi national companies looking to establish themselves in the UAE, those already doing business here but wishing to open an office in the Capital and the natural expansion of existing organisations within the city.
In addition, the emirate's economic diversification ambitions, and the development of planned industrial, financial and free trade zones such as the ICAD's in Mussafah and the new industrial area which will be created around Khalifa Port, are anticipated to stimulate demand even further. Recent statistics supplied by the Abu Dhabi Chamber of Commerce and Industry (ADCCI), showed approximately 60,000 licensed businesses in the city in 2006, a number that is growing at an annual rate of five per cent.
The effect of this increased demand is driving prices for commercial space and rents up with increases of up to 45 per cent in the past 12 months.
With current vacancy rates at below one per cent across the sector, market analysts predict that the supply shortage will drive rents even higher (see graph).
A recent report from the HSBC Middle East Equity Research team also contains a detailed analysis of the commercial Abu Dhabi real estate market, and shows that rental yields in the office property market in Abu Dhabi are among the world's highest at eight per cent. It also states that Abu Dhabi is 'significantly under-supplied' with retail property space, in spite of an increase of 220 per cent in total retail space in the emirate since 2000.
Much of this space is within the major new shopping centres which have opened up in the city, Abu Dhabi Mall and Marina Mall opened in 2001, contributing a total Gross Leasable Area (GLA) of 139,000 square metres. In 2006 the second phase of Marina Mall added an additional 40,000 square metres. This year Al Raha Mall opened in May and Al Wahda Mall in July, with a combined retail space of 172,500sqm, the completion of Al Khalidiyah Mall will add a further 46,000 square metres. Planned openings for 2008 include the 16,000 square metres Arabian Souq in September, part of the redesigned Central Market area, which will feature an additional 55,000 square metres retail podium due in the third quarter of 2010.
New districts
The new districts currently under development will also increase retail space significantly, figures quoted in Plan Abu Dhabi 2030 are (see Table 2):
A total of 1.83 million square metres all scheduled for completion between 2010 and 2015. By 2030 the plan predicts that Abu Dhabi will have more than four million square metres of retail space spread from Ghantoot in the North through the outlying areas of Shahama, Khalifa and Al Rahba through to the expanded Abu Dhabi International Airport retail offering and the developments on the islands.
We should also not forget the increasing demand for hotel accommodation in the city, currently 75 per cent of demand is driven by business tourism. Occupancy rates stand at an average of 90 per cent, with average room rates increasing by 40 per cent for 4 and 5 star properties.
The serviced apartment market has seen rates increase by 80 per cent and is currently witnessing monthly rent rises as occupancy rates are driven higher by the lack of residential property in the city.
The Abu Dhabi Tourism Authority (ADTA) established in 2004 to help drive the leisure tourism sector is seeking to attract 3 million visitors in this segment by 2015. They have licensed plans for the construction of 17,000 new hotel rooms, 45 per cent of which will be in the 5 star category, there are currently 10,000 rooms. Recent initiatives in this sector are the opening of the Emirates Palace Hotel in February 2005 adding 302 rooms and 92 suites, the refurbishment of the Intercontinental Hotel's 336 rooms and 54 suites and the arrival of the Shangri La in August this year currently adding 214 rooms and 161 serviced apartments.
Abu Dhabi is being developed as a cultural, sporting and MICE — Meetings, Conferences and Exhibitions — destination with attractions to cater for all these audiences. The Cultural District of Saadiyat Island will house the planned development of the Guggenheim and Louvre Museums alongside a prestigious performing arts centre, Maritime Museum and a Museum dedicated to the life of the late Shaikh Zayed Bin Sultan Al Nahyan, scheduled for completion by 2012. The Abu Dhabi Golf Championship inaugurated in, 2006, is spearheading the drive for Golf Tourism with an additional 25 courses planned by 2030, Formula One has signed a 9 year race contract which will see the first race take place on Yas Island in 2009.
Increases in the numbers of visitors have partially been driven by the expansion of the national airline Etihad Airways — the world's fastest growing airline — which plans to increase their international destinations to 70 by 2010. We anticipate that the growth in the leisure and business tourism sectors will continue as Abu Dhabi positions itself as a world class business, sporting and cultural tourism destination.
All of these facts and figures point to a buoyant and growing commercial sector within the Abu Dhabi real estate market. In the next 12 months we should see further projects launched to help meet the current demand for high quality retail, office and hospitality space as the future plans for the city and emirate continue to evolve.
— The writer is the Managing Director, LLJ Property.
