Abu Dhabi’s corporate office market gets a makeover

In hindsight, the global financial turmoil and the consequent apathy among corporate tenants to go for upgrades may be the best thing to happen to Abu Dhabi’s office space. It works like this: by staying put in their existing locations through 2009, they now have an opportunity to seek the crème de la crème of new office stock getting ready this year.

“As more Grade A and B supply enters the market, companies will start to relocate to higher quality space,” says Jesse Downs, director of research & advisory services at Landmark Advisory. “However, due to logistical and current economic concerns, we expect such relocation will happen gradually over the next 12 to 18 months.”

Based on present estimates, Abu Dhabi should see a doubling of quality office space by 2012, of which one-fifth will enter the market this year itself according to Landmark Advisory. This will soften the existing high rentals, but primarily in the Grade C category.

Declining rents

During 2009, office rentals in Dubai have dropped a lot more, by 60 per cent, than in undersupplied Abu Dhabi. Even then, average rent for offices per square foot in the capital declined by 25 per cent to around Dh2,800 from their peaks, according to the latest data from Jones Lang LaSalle.

This being the case, corporate tenants will do well to shed their caution and check out the options coming through over the next few months. “Shortage of quality accommodation is suppressing total demand in Abu Dhabi as it resulted in many companies taking a small presence in this market,” opines Piers Barttelot, director of agency, Abu Dhabi - Jones Lang LaSalle.

“The back-office and other support facilities are being housed in Dubai where there is a much greater range of high quality office accommodation for lease.”

CB Richard Ellis recognises that demand has declined because of the global economic downturn. However, it expects businesses to re-examine the market and expand or relocate from sub-standard accommodation into new Grade ‘A’ space when it becomes available.

“We expect latent demand from within Abu Dhabi to be strong in 2010-11, with the addition of new players entering the market over the same period,” says Richard Foulds, director and head of Abu Dhabi as well as director of leasing at CB Richard Ellis Middle East. “There is also evidence of new international occupiers looking at the market for the first time.”

Whetting the appetite

Some Grade ‘A’ office buildings did enter the Abu Dhabi marketplace last year itself, but these premises were mainly purpose-built for government bodies and not for wider commercial release. This has only served to whet the appetite for more.

“Demand from other international and regional private companies remains low, many tenants are unwilling to commit now, in a market where a lot of buildings are not ‘fit for purpose’,” Barttelot notes.

They would much rather seek short -term extensions to their existing leases. The strategy is to delay an expansion and the consequent larger capital commitments this would bring in its wake. These corporate tenants would, it is believed, wait until more office stock comes onto the market between now and 2012, when the expected doubling in such capacity should see more competitive terms. Jones Lang LaSalle’s research forecasts around 3.4 million square metres of office space, up from the current 1.5 million, by 2013 across Abu Dhabi. However, in the medium term, Jones Lang LaSalle contends it would mainly be Grade ‘B’ stock when measured against international standards.

But there are many that will be more than a match for the best-of-breed office developments anywhere in the world. Such prestige projects such as Mubadala’s Al Sowwah Island, to be the new Central Business District comes complete with a new stock exchange, Adnec’s Capital District and others are sure to provide the desired Grade ‘A’ capacity. But these are still a few years away.

More immediate openings include a couple of high-rises by the third quarter of this year in the Corniche area around 32nd street, Emirates Palace and the highly sought after Khalidiya area, points out Adel Hamaizia, business development manager at RE/MAX Abu Dhabi.

“They fetch between Dh2,000 and Dh3,200 a square metre, while the majority of commercial space goes for Dh1,200 to Dh2,500,” he adds.

Hamaizia reckons that the present gross yields — anything from nine to 17 per cent, with an average initial yield of 10.98 per cent — in the commercial sector in Abu Dhabi make for good business. This compares to the average yield in Dubai of 9.87 per cent, 10.38 per cent for MENA, London’s 5.5 per cent and New York’s 7.3 per cent. And he believes the demand is there.

“One trend that I have witnessed personally is a large amount of enquiries, approximately 70 per cent, for business centres. Particularly from small start-ups and companies from abroad that plan to set up an office or branch in the capital.”

The preference is for hassle-free space near the airport. This sure bodes well for projects such as the advantageously placed ADNEC’s Capital Centre.

However, Jones Lang LaSalle does not envisage the first spaces will be delivered before 2014 to 2015.

There may be one exception: ADNEC’s very own Capital Gate. It can’t be missed when passing by — the leaning and curved design already shimmers proudly in its recently completed glass façade.

There are other quality office properties coming on-line over the next two years, notably the Trust Tower and the TDIC/ADTA headquarters, the latter set for completion sometime in 2011.

This is one property that will be difficult to miss out on. Aldar’s new corporate headquarters building will host its fair share of third-party corporate tenants as well when it opens this quarter.

Of course the design demands attention, but so does the fact that it provides office space in category ‘A’ condition. The definition being not just the usual shell and core, but a suspended ceiling with integral light and air conditioning system in place together with a raised floor.

“This level of handover condition provides the incoming tenant with substantial cost and time savings in respect of their individual fit out programme,” enthuses Piers Barttelot, director of agency, Abu Dhabi - Jones Lang LaSalle.

Aldar’s HQ comes with a competitive edge

This makes Aldar’s HQ one of a handful of buildings in Abu Dhabi to provide such an enhanced level of office space. “Many tenants would prefer to lease space completed to category ‘A’ condition, and the Aldar HQ will therefore have a competitive advantage over existing projects in Abu Dhabi,” adds Barttelot.The preference is certainly there, but will companies be willing to pay the price? “The anticipated handover of Aldar’s HQ will be an interesting test case,” remarks Jesse Downs, director of Landmark Advisory’s research & advisory Services.

“With initial asking prices of Dh2,750 to Dh3,000 a square metre, the rates are relatively high. Of course, these rates depend on the terms of the contract and other extenuating circumstances.”

Office units in the Aldar HQ are large, the smallest being 600 square metres. Large floor plates and longer term leases are just what corporate tenants have long been crying out for. However, this does not necessarily mean that prospective tenants are quite yet ready to storm the building, Downs says.

“Given current cost sensitivities and preferences for smaller units, we expect leasing velocity to remain low. Especially while the vast majority of the master development is still under construction.”

Accessibility

It’s great to have the perfect office premises, but being able to get there is equally important.

“Parking in Abu Dhabi is a hot topic, as is traffic and access to and from the office locations,” says Richard Foulds, director, head of Abu Dhabi and director of leasing at CB Richard Ellis Middle East.

“New buildings will have to meet the Urban Planning Council parking guidelines and public transport needs to be, and is being, improved.”

By: Kishore Kumar, Gulf news