Abu Dhabi’s office market is facing pressure as firms continue to downsize and consolidate operations, a trend that has persisted over the last two years, resulting in a drop in rates across the UAE capital. 

According to the Cluttons Abu Dhabi Property Market Outlook report, while rents across the city’s prime office buildings held steady during the first quarter of the year, deals continue to be concluded below headline asking rates in many cases.

In secondary and tertiary buildings, rates have dropped by as much as 30% to 50% over the same period.

Edward Carnegy, head of Cluttons Abu Dhabi, said: “In some cases, rents in tertiary buildings have fallen to nearly the same level as prime warehouses.

READ: Abu Dhabi rents drop by 2.1% in Q1 2018

“However, these substantial drops do not accurately reflect market conditions and are a result of landlords holding out on rent reductions for extended periods of time, before being forced to make drastic adjustments due to increased vacancy as they chase the market down.”

Cluttons has also noted rising instances of landlords becoming more willing to cover agency fees, Carnegy added.

“This is a seismic change in behaviour as up to 60% or 70% of landlords are now willing to do this, compared to almost none a few years ago,” he said.

In addition to this, many are also willing to offer increased parking provisions, increased rent free periods, shorter leases with increased flexibility, the report noted.

Overall, Cluttons’ report highlights medium term prospects are slightly more encouraging, with rising public sector spending expected to boost GDP growth, which in turn should aid in the return of more robust levels of occupier requirements.

 

But Faisal Durrani, head of Research at Cluttons, believes that this is “unlikely to materialise” for another 9-12 months.

“Until the market approaches that point, we expect further office rent drops of 5% to 10% on average, across the board, which we expect to continue underpinning the rising relocation activity we are seeing, after a couple of very quiet years,” he said.

“In parallel, occupiers from the banking and public sectors are testing the waters, attempting to capitalise on the softer rents; a clear indication that some are sensing the bottom of the current property cycle ” concluded Durrani.