Prime Grade A offices have displayed a level of stability with marginal dips in rents, although Grade B buildings and older office districts continue to witness deflationary pressures as many tenants are consolidating their activities in either smaller offices or better buildings
- The weak warehousing and logistics sector further polarises between high and low performing assets, although demand is forecast to witness a marginal uptick.
- Rising supply figures expected to amplify the weakening performance witnessed in the retail sector.
David Godchaux, Group CEO Cushman & Wakefield Core says Although rents are forecast to remain under pressure across the board in 2018, we expect the Grade A assets to be relatively resilient due to limited stock available and sustained underlying demand. Elsewhere, we expect the migration of tenants, for the reasons of either shifting to better premises or lower operating expenditures, to cause rising vacancy levels and further rental drops.
Industrial Market
Andrew Ausama says Due to increasing stock, this sector is expected to see lease rates remain under pressure as the market gradually absorbs new supply. With demand for industrial units expected to recover as the sector resumes growth, declining rents are forecast to stabilise towards 2019.
Over the medium term, it is likely that occupiers will start shifting to higher quality units leading to an increasingly two-tiered market. Better build quality and accessible stock will continue to outperform the market, whereas areas with poorer quality warehousing and inferior infrastructure are expected to continue seeing rental declines leading to widening market segmentation He adds.
Retail Market
The report details Retail GLA in the Capital is set to rise steadily over the next 2 years. Maryah Central, which is set to add at least 785,000 sq. m. to the total supply is nearing completion. Reem Mall on the other hand which is projected to bring a GLA of approximately 270,000 sq. m. is likely to be delayed beyond the projected opening 2020.
David Godchaux explains Weak overall economic sentiment over the past 2 years, contractions in household incomes and limited discretionary spending has clearly impacted Abu Dhabi’s retail sector. Weakness in hospitality, in particular, has seen a spillover onto the retail sector given that tourist expenditure traditionally contributed a significant portion of Abu Dhabi’s overall retail spend. Rising supply figures further amplify the weakening performance witnessed by the retail sector.
He further adds However, prime & super regional malls appear to be more resilient than regional & community malls, again reflecting a market segmentation. Few of the older regional and community malls are finding it challenging to maintain occupancy levels as retailers increasingly prefer to position themselves in newer and larger retail spaces, which attract higher footfalls due to their overall attractiveness as leisure destinations. This is likely to lead to further divergence between rental rates for regional and community malls and prime & super regional malls which already show a difference of almost AED 1,000 /sq. m. on average.
Andrew Ausama says To maintain occupancy levels and viability, operators of underperforming malls may resort to easing tenancy terms in line with revenue generation (linking rents to tenant revenue). Potential marketing initiatives with a higher focus on social media, branding and public outreach, considering the affordability and demographics of the catchment areas, are also expected to stimulate footfalls.