Abu Dhabi Real Estate Market Overview Q Abu Dhabi

Transcription

1 Abu Dhabi Real Estate Market Overview Q Abu Dhabi

2 2 Abu Dhabi Real Estate Market Overview Q3 2017

3 Abu Dhabi Market Summary Q3 saw a further decline in residential and hospitality performance due to the continued reduction in government spending and sentiment. While headline rents in prime retail and office projects remained relatively stable, both these sectors have moved further in favour of occupiers. Residential rents and sales prices have generally declined as vacancies have increased in response to subdued demand and further additions to supply. Rental demand has been negatively impacted by job losses and cuts in housing allowances while suppressed sentiment has resulted in fewer sale transactions. Office rents have remained stable in Q3 despite the decline in demand, as office supply remains stable with no major completions. However, the delivery of additional supply at a time of weaker demand is expected to place downward pressure on rents over the next 12 months particularly in secondary buildings. Retail rents have also remained stable in the better performing malls, despite a continued decline in retail spending during Q3. The market has been supported by the absence of further new supply but the stable rents disguise a softening in market conditions as mall operators are offering more extensive leasing incentives to maintain and attract retailers. The hospitality market registered an 8% drop in ADRs and a 2% drop in occupancy levels compared to the same period last year. Consequently, RevPar declined by 11% in YT August 2017 compared to the same period last year. The final quarter of the year is traditionally a strong period for the Abu Dhabi hotel market and this trend will be enhanced by the opening of the Louvre museum in November in addition to the Grand Prix. Abu Dhabi prime rental clock * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL Abu Dhabi Real Estate Market Overview Q

4 Office Hot Topic The office market continues to be affected by the series of mergers, job cuts and consolidation measures amongst government and financial services entities. There are signs that mergers and consolidation could continue, with Eshraq Properties and Reem Investments being the latest to announce a potential merger that would create the second-largest listed real estate developer in Abu Dhabi. There has been a general slowdown in hiring and a net loss of employment by some Government agencies and private sector firms in Abu Dhabi over the past year. This decline may be partially offset by the growth of jobs in the tax, IT and accounting sectors, due to the implementation of VAT in the UAE from 1st January Supply No major completions took place during Q3, with the total office stock remaining at approximately 3.5 million sq m GLA. Approximately 170,000 sq m of office GLA is expected to enter the market by the end of 2017 with the delivery of ADIB HQ on Airport Road and Leaf and Omega Towers on Reem Island. Deliveries in 2018 and 2019 will be significantly lower (totaling less than 100,000 sq m), as developers remain cautious due to subdued demand for additional office space. Current Supply (2014 Q3 2017) Future Supply ( ) 4 Abu Dhabi Real Estate Market Overview Q3 2017

5 Office Performance Headline rentals for both Grade A and Grade B office space have remained stable over the past 12 months (averaging AED 1,760 / sq m and AED 1,030 / sq m respectively). These headline rents do however underestimate the extent to which the market has shifted in favour of tenants over the past year. With vacancies increasing and expected to rise still further, there is greater competition and more choice of space available to tenants. This has resulted in more landlords being willing to negotiate rents and offer incentives such as grace periods and fit-out contributions, particularly within Grade B office buildings. Q % Demand for office space remains limited, with some companies downsizing to smaller units. The delivery of additional office space throughout the year is expected to further impact the office market. Q % Vacancy Rate Rents / AED per sq m Grade A Grade B AED 1,760 AED 1,760 AED 1,030 AED 1,030 Q Q % Abu Dhabi Real Estate Market Overview Q Q Q % 5

6 Residential Hot Topic Abu Dhabi Municipality has announced an initiative to support low income earners by offering units for rent as low as AED 700 a month. This initiative seeks to reduce the illegal partitioning of villas and sharing of units, by providing better options for lower income residents. While transaction volumes have decreased, residential sales continue. Aldar s Water s Edge scheme on Yas Island was well received at Cityscape Global, setting a new benchmark for good quality waterfront housing at a lower price point. Supply Approximately 550 units were delivered in Q3, bringing the total residential stock to approximately 250,000 units. Deliveries included Al Jazeera Tower on the Corniche, the C34 residential tower in Saraya on the Corniche and the Abu Dhabi Marina Development in Al Bateen. A further 3,000 residential units are currently scheduled to enter the market by the end of 2017, mainly within Reem Island, Saadiyat Island and Saraya. However, a significant proportion of this supply could be delayed at the final stages of approvals and handover. Current Supply (2014 Q3 2017) Future Supply ( ) 6 Abu Dhabi Real Estate Market Overview Q3 2017

7 Residential Performance The residential market in Abu Dhabi continued to face downward pressure, with rents and prices registering further declines on both a quarterly and an annual basis. Average rents for prime 2 bedroom apartments decreased by a further 5% in Q3 to reach approximately 135,000 per annum. Apartment rents have now declined by around 13% on a basis due to the continued increase in vacancy rates, resulting new supply completions during a period of job losses and cuts in housing allowances. Residential vacancies are expected to increase further in 2018, causing further rental declines. Prices have also continued to fall, with average prices for prime villas declining 8% in Q3 (-13% ), while prices for apartments have fallen (-3% Q-o-Q and -13% ) to reach approximately AED 12,800 per sq m. Declining sentiment and reduced transaction volumes have driven these falls with average prices expected to decline further during Villas Sales Sales Rents Rents Q-o-Q Q-o-Q -8% -13% -1% -9% Apartments Sales Sales Rents Rents Q-o-Q Q-o-Q -3% -13% Abu Dhabi Real Estate Market Overview Q % -13% 7

8 Retail Supply Hot Topic Stable rents in higher quality malls and positive leasing campaigns for upcoming malls somewhat hide the softening of the retail market with mall operators offering retailers increased incentives. Mall operators have also been undertaking promotions and other campaigns in an attempt to maintain footfall and sales levels. With a decline in disposable incomes caused by increased cost of living, cuts in housing & other allowances and job insecurities, consumers are changing their spending habits with a shift from luxury brands to value retailing. While the latter category continues to compete through price discounting, luxury brand retailers have avoided heavy discounts and promotions as these are seen to negatively impact their brand image. The delivery of additional retail space and the growth of e-commerce will further impact the retail market. This is likely to result in an increasingly two tier market, with less competitive malls struggling to retain tenants and sustain footfall. No major completions took place during Q3, with total retail stock remaining at approximately 2.6 million sq m. Approximately 54,000 sq m of retail GLA is expected to be delivered by the end of 2017, primarily within mixed use schemes. Supply is expected to increase significantly in the medium term with the delivery of Al Maryah Central Mall in 2018, followed by Reem Mall and others, and the expansion of existing malls over subsequent years. Majid Al Futtaim has also announced plans to commence the construction of City Centre Al Jazira Mall in October 2017, for completion in This mall will be anchored by a Carrefour hypermarket and will include 153 retail stores. Current Supply (2014 Q3 2017) Future Supply ( ) 8 Abu Dhabi Real Estate Market Overview Q3 2017

9 Retail Performance Average line store rents within well located malls on Abu Dhabi Island remained stable at AED 3,000 sq m p.a. Average line store rents within malls off Abu Dhabi Island also remained stable at AED 1,860 sq m p.a. Performance - Retail Rents break clauses, rent free periods and contributions to fit out to attract and retain retailers given the subdued demand and reduction in retail spending. Q % Vacancy Rate Q While these headline rents have remained stable this quarter, this disguises the fact the market has moved further in the favour of tenants. Mall operators have been offering increased incentives such as flexible leasing terms, early 2% Q AED 3,000 Abu Dhabi Real Estate Market Overview Q Q % AED 3,000 9

10 Hotel Supply Hot Topic According to the Abu Dhabi Tourism & Culture Authority, Abu Dhabi welcomed more than 420,000 hotel guests in August 2017, representing 13% growth compared to the same month last year. The lifting of visa restrictions for Chinese travelers has contributed to the rise in hotel guests with the Chinese now being Abu Dhabi s largest overseas source market, heading India and the UK. ADTCA continues to partner with private sector groups to promote the Emirate in overseas source markets. They recently joined with TUI Group to invite a number of Ukrainian journalists to highlight Abu Dhabi s leisure attractions to the Ukrainian market. In another initiative, ADTCA has launched a 45-day promotional campaign at the Al Ghuwaifat border with Saudi Arabia, under the theme of Abu Dhabi Welcomes You. The opening of the Louvre Museum in November along with ADTCA s continued efforts to promote Abu Dhabi are expected to increase demand throughout the rest of the year, but the hotel market is expected to witness further downward pressure. No major completions took place during Q3, with the total hospitality stock remaining at approximately 21,200 rooms. Approximately 700 keys remain to be delivered by the end of 2017 including the Grand Hyatt Abu Dhabi Hotel & Residences (Emirates Pearl) and Rotana Saadiyat Resort, both falling within the 5-star segment. Current Supply (2014 Q3 2017) Future Supply ( ) 10 Abu Dhabi Real Estate Market Overview Q3 2017

11 Hotel Performance The third quarter of 2017 witnessed a decline in both occupancy levels and ADRs compared to the same period last year. The upcoming supply is expected to add further downward pressure on ADRs and occupancy levels throughout the rest of the year. ADRs have declined by 8% (YT August 2017) when compared to the same period last year, to reach approximately USD 111. Occupancy rates decreased 2% (to 68%) over the year to August As a result, RevPAR declined 11% to reach USD 76 over the YT August. 68% -2% Source: STR Global ADR (USD) YT August % Occupancy (%) YT August 2016 YT August 2016 YT August USD 111 USD Source: STR Global Abu Dhabi Real Estate Market Overview Q % 11

12 Definitions 12 O clock Indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards. 9 O clock Indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation O clock Indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation. 6 O clock Indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards. 12 Abu Dhabi Real Estate Market Overview Q3 2017

13 Office Office buildings are considered handed over once they are ready for tenant fit-outs. Total supply excludes government owned and wholly occupied buildings (such as Abu Dhabi Municipality). Average Grade A Office rents represent the average effective rents taken from a basket of selected buildings defined as superior in the current market. It is an effective rent that accounts for rent free periods only (and not the financial impact of any other tenant incentive/s) and excludes service charges and local taxes. Vacancy rate is based on estimates from the JLL Agency team. It represents the average rate across all buildings in the supply sheet. It should be noted that the office vacancy rate has been revised following an office audit conducted in 2015 and does not therefore reflect a quarter on quarter decrease. Residential Completed residential building refers to a building that is handed over for immediate occupation. This data excludes labour accommodation. Residential performance data is based on asking prices from a basket of selected developments. Retail Retail space is considered handed over once it is open and operational. Classification of retail centres is based upon the ULI definition and based on their GLA: - Super Regional Malls have a GLA of above 90,000 sq m - Regional Malls have a GLA of 30,000-90,000 sq m - Community Malls have a GLA of 10,000-30,000 sq m - Neighborhood Malls have a GLA of 3,000-10,000 sq m - Convenience Malls have a GLA of less than 3,000 sq m Prime Average Rent Shopping Centre represents the top open market net rent that could be expected for a notional standard line unit shop situated in a specified shopping centre, as at the survey date. Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at super regional & regional malls on Abu Dhabi Island. Hotel Hotels are considered handed over once they are open and operational. Hotel room supply is based on existing supply figures provided by ADTCA as well as future hotel development data tracked by JLL Hotels. Room supply includes all graded supply and excludes serviced apartments. Hotel performance data is based on a monthly survey conducted by STR Global on a sample of international standard midscale upscale hotels. Abu Dhabi Real Estate Market Overview Q

14 Abu Dhabi Abu Dhabi Trade Centre Building 7th Floor, Office No. 3 PO Box Tourist Club Area Abu Dhabi, UAE Tel: Fax: For questions and inquires about the Abu Dhabi real estate market, please contact: David Dudley International Director Head of Abu Dhabi Office david.dudley@eu.jll.com Dana Williamson Head of Offices & Business Space MENA dana.williamson@eu.jll.com Andrew Williamson Head of Retail MENA andrew.williamson@eu.jll.com Marko Vucinic Senior Vice President, Acting Head of Hotels & Hospitality Group MEA marko.vucinic@eu.jll.com Craig Plumb Head of Research MENA craig.plumb@eu.jll.com Mai Hassan Senior Analyst Strategic Consulting Abu Dhabi mai.hassan@eu.jll.com With other regional offices in: Dubai, Cairo, Riyadh, Jeddah, Al Khobar, Johannesburg, Nairobi, Lagos and Casablanca Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.