ABU DHABI MID-YEAR SNAPSHOT

Transcription

1 ABU DHABI MID-YEAR SNAPSHOT Core Savills Research August 2017 Residential Market Office Market Other Market Segments Market Outlook Residential Market Office Market Other Market Segments Market Outlook

2 This publication This document was published in August The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. We have used a standard set of notes and abbreviations throughout the document. 2

3 CONTENTS Residential Market Office Market Other Market Segments Market Outlook 3

4 ABU DHABI MID- YEAR SNAPSHOT Residential Market Benefits Tenants A lot of different factors continue to negatively impact Abu Dhabi s real estate market, such as contractions in household income and workforce redundancies in both the public and private sectors. Although we believe that the past 12 months have had an overall beneficial effect on the market fundamentals, with offer and demand in the process of readjusting to more sustainable levels, these negative effects are still felt strongly and have been amplified on residential sales prices. We have witnessed widespread dips in the range of 4 to 16% within the last two quarters, depreciating faster than our yearly forecast, estimated at 15% until the end of The prime market has unsurprisingly witnessed steeper contractions, as occupiers favour affordability and investors face increasing challenges to lease high-end products. New supply, coupled with the rise in secondary stock coming to the market, is expected to exert further downward pressure on sales prices in the short-term. Investors who entered the market towards the peak of the cycle are looking at over 25% drops from their initial acquisition prices. Depending upon their financing structure, they are faced with a choice of either exiting the market in distress or sticking to the rental market, targeting an already limited tenant pool. Despite these market conditions, we expect the pace of price drops to slow down over the next 6-12 months as the market reaches a critical point with sales price bottoming at AED and leasing prices at AED per square foot. Developers/landlords may resist further drops in pricing as these reductions undervalue their portfolio and lower rental yields effect or may breach bank covenants which may require vendors to increase capital security or reduce debt in keeping with banking requirements. This resistance for further drops may result in developers witholding stock in a healthy adjustment mechanism, already witnessed in Dubai in the past 5 years. This would, in turn, cause a prolonged period of lower volumes and flattened sales prices. We expect this plateau to start by end of 2017 and last for a period of months. Residential villa sales Residential apartment sales Sales price in AED/sq. ft. Sales price in AED/sq. ft Al Reef Villas Al -9% Bandar -13% Al Raha Gardens -4% Al Muneera -11% Ghadeer Villas -14% Al Reef Downtown -8% Golf Gardens -10% Al Zeina -5% Marina Square -2% Hydra Village -16% Saadiyat beach residences -16% Saadiyat Island -6% Sun and Sky Towers -4% Saadiyat (sea view) -11% The Gate -11% Source: Core Savills research Q Q

5 AUG 2017 But not all is gloomy and we still notice steady activity and absorption, evidenced by a successful launch of The Bridge at Cityscape, as the market moves towards lower entry prices and optimised unit sizes. The rental market mirrors the sentiment of the sales market as housing allowances remain under pressure. Whilst mid-segment apartments located within close proximity to offices have been relatively resilient, villas have witnessed rental decrease in the range of 14-17%; with an exception of Saadiyat Villas which displayed a lower rental decline under 9%. In this challenging climate, landlords in the city area are finally starting to adjust to these market conditions, while others are continuing to lose tenants as a consequence. Across the capital, landlords have had to become increasingly flexible with the number of payments, even contributing towards utility bills in an attempt to maintain rental income and avoid substantial yield compressions. Average villa rents Average two-bedroom apartment rents Per annum rent in 000 Per annum rent in Al Reef Villas Al Reef Island -6% -17% Golf Gardens -15% Al Reem Island -7% Al Raha Gardens -4% Khalifa City A -14% Hydra Village -6% Al Raha Beach -17% Saadiyat Villas -7% Saadiyat Island apartments -9% Source: Core Savills research Q Q

6 ABU DHABI MID- YEAR SNAPSHOT Office Market Vacancy rates continue to increase across the market on the back of weaker demand, particularly for office stock located in secondary areas. Rents in this segment dipped by 11% over the last two quarters. Grade B buildings continue to witness deflation as many tenants are consolidating their activities in less office space or better buildings at the same cost. In the prime grade offices, we have seen a level of consistency with marginal dips in rents, although downward pressure on office rents is expected to continue in the second half of the year albeit, moderately elevate with higher government spending and introduction of economic stimulants that directly benefit state-backed grade A tenants. Although most new enquiries are concentrated on the footprint optimisation, we have interestingly witnessed an uptick from downstream oil and gas service providers on the back of marginal revival in tender activity. Most occupiers in the hydrocarbon sector have undergone substantial restructuring, resulting in cost savings and higher efficiencies. Having adjusted to oil prices at $50 and calibrated operations accordingly, tenants are moving ahead with spatial requirements and are keen to lock-in on ongoing low rents. However, international first phase expansions in the office sector have been largely limited. The introduction of VAT is expected to add interim compression on corporate and retail businesses, as they may face higher operational overheads due to administrative and compliance costs combined with lower consumer confidence, adding further downward pressure on rents. This effect is expected to be particularly marked in smaller, mid-size firms, as profit margins remain under pressure - although structurally enhancing company performance, by streamlining services in a way to comply with VAT over the mid to long-term. Abu Dhabi office rents Q (all rents in AED/ sqm/ annum) Office Rents Minimum Maximum Prime / Grade A+ 2,250 2,750 Grade A 1, Grade A in secondary areas 800 1,100 Grade B Source: Core Savills research 6

7 AUG 2017 Other Market Segments Although mall retail performance remained flat in the wake of weaker disposable incomes, we have seen a rise in interest levels from F&B occupiers, both for back-end cold storage requirements and retail outlets. Supply for such retail outlets is relatively unsubstantiated, as existing non-mall stores lack the power-loading and storage capacities. We have also seen Grandiose, a supermarket chain, open three new outlets in Abu Dhabi over the past few months - indicative of sustained demand for priced convenience stores. Abu Dhabi s warehousing market has displayed a relative resilience to the widespread rent drops that have affected other asset classes, such as the commercial and residential markets. Headline rents have been flat across most areas with an exception seen in Mussafah, where rents dropped by 10% in the last two quarters. We have noticed an increase in supply in this location due to a few speculative build properties coming to the market, along with consolidation and relocation activity as occupiers look to upgrade to newer, better built stock. The ongoing development of freezones and ports are actively diversifying Abu Dhabi s revenue streams. This continued investment in infrastructure is in turn attracting industrial occupiers seeking large parcels of land to develop facilities. This is evidenced by Al Futtaim shifting major portion of their operations from JAFZA to KIZAD while other major entrants reportedly include the UAE Siddco Group, COSCO Shipping and Honeywell. These transactions reinforce confidence in the industrial sector, at a time when other Abu Dhabi real estate market segments continue to face economic headwinds. Continued government impetus has led to a new program with the aim of promoting more manufacturing activity in Abu Dhabi and reduce construction costs for new industrial facilities. With pre-approved designs that investors can choose from, cost savings can be achieved on construction of a variety of different industrial and warehousing facilities while transferring the cost benefits to end-users. Outlook This current period of change largely reflects healthy adjustments of supply to the existing demand in Abu Dhabi s real estate market, with the government going through restructuring and the austerity measures starting to bear fruits. This is evidenced by higher tourism activity as reported by Abu Dhabi Tourism and Culture Authority and SCAD, as the emirate diversifies its revenue streams away from oil dependency. Furthermore, ratings agency Standard and Poor s (S&P) affirmed the AA/A-1+ sovereign credit ratings of Abu Dhabi, with a stable outlook reflecting its expectation that Abu Dhabi s economy will remain resilient and its extremely strong net fiscal asset position, which it projects at about 260 per cent of GDP on average over , making it one of the highest among the sovereigns globally. As the offer continues to readjust to current demand, tenants have the upper-hand to negotiate lower rents in both the residential and office sectors, while slowly building up new demand on the back of oil stabilisation and government spending. Although short-term recovery in real estate prices is unlikely, we expect the downward trend to slow down over the next 6-12 months - as the market softens, yet continues to strengthen its fundamentals. Abu Dhabi warehousing rents Q (all rents in AED/ sqm/ annum) Annual rent in AED/sqm Airport Free Zone Mussafah ICAD 1 ICAD 2 KIZAD Al Markaz Al Mafraq Source: Core Savills research 7

8 GLOBAL PRESENCE OVER 700 OFFICES AND ASSOCIATES WORLDWIDE 62 OFFICES AMERICAS & CARIBBEAN 135 OFFICES UK, IRELAND & CHANNEL ISLANDS 103 OFFICES EUROPE 272 OFFICES MIDDLE EAST & AFRICA 134 OFFICES ASIA PACIFIC Core - UAE Associate of Savills As one of the largest UAE property services firms, Core, UAE Associate of Savills, combines expert local market insight with the international strength provided by over 700 offices globally. Core s multi-lingual advisers share an entrepreneurial spirit with a commitment to cultivating long-term, collaborative client relationships. Our local roots, commitment, and attention to detail are backed by the global standards of Savills 150-year-old brand, giving our clients direct access to 30,000 experienced practitioners, with a deep understanding of specialist real estate services in over 60 countries. Our bespoke residential and commercial property advice enables our clients to make informed real estate decisions both locally and abroad, through a single point of contact in any of the 15 languages spoken by our consultants, in one of our 3 offices, in Downtown Dubai, Jumeirah Lakes Towers and Abu Dhabi. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Core, UAE Associate of Savills, accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Core s research team. Core Real Estate Brokers. 8 Andrew Ausama Associate Director - Abu Dhabi andrew.ausama@ Prathyusha Gurrapu Senior Manager - Research and Advisory prathyusha.gurrapu@ Mathilde Montel Manager - Public Relations mathilde.montel@

9 RECENT MARKET LEADING RESEARCH PUBLICATIONS THE GREEN ISSUE Sustainability and Wellness in Dubai 2017 DUBAI OFFICE MARKET SPOTLIGHT May 2017 Sustainability in Dubai the story so far Prime and secondary Segment Performance Evolution Wellness at workplace Upcoming demand trends Sustainability Outlook Dubai as a global commercial investment destination Dubai Residential Market Update Q Dubai Office Market Spotlight Dubai Residential Market Update Q DUBAI RESIDENTIAL MARKET UPDATE Q DUBAI RETAIL REVIEW 2017 ABU DHABI MARKET REVIEW Supply and demand dynamics RESIDENTIAL MARKET SUMMARY 2016 Dubai retail vs other global cities RESIDENTIAL OUTLOOK 2017 Supply and Demand Dynamics Upcoming retail trends OFFICE MARKET REVIEW Sales and Rental Market Analysis Looking ahead AREAS TO WATCH Ready and Off-plan Transaction Analysis Dubai Residential Market vs. World Cities Dubai Retail Review 2017 Abu Dhabi Market Review Dubai Property Review 2016 and beyond Core Research Dubai Property Dubai Property DUBAI PROPERTY REVIEW 2016 AND BEYOND IN FOCUS: Capitalising on a bottoming market An investment guide Year end 2016 Dubai Office Market Update Q RESIDENTIAL MARKET SUMMARY OFFICE MARKET SUMMARY 2017 AND BEYOND In Focus: Capitilising on a bottoming market Year end 2016 Dubai Office Market Update Q Executive Summary Dubai Residential Market Sentiment Survey 9

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