The UAE capital’s real estate market will continue to be undersupplied, but only in the short term as new commercial and residential spaces are expected to gradually become available, according to property management services firm Jones Lang LaSalle (JLL).
In its Abu Dhabi City Profile, which was released this month, the company said its outlook for the emirate’s property market remains upbeat owing to the presence of sovereign and private wealth in Abu Dhabi as well as the local government’s vision and strategic investment initiatives.
The emirate’s development projects – all geared towards supporting a more diversified economy – have been on an upswing despite the current economic climate. Buoyed by revenues from its oil and gas sector, Abu Dhabi’s GDP has been enjoying an annual average growth performance of 9 per cent annually between 2001 and 2009, the report mentioned.
Growth rate in its non-oil sector, however, has been relatively smaller at 3.6 per cent per annum during the same period, but the government has stressed its commitment to “reduce dependence on oil sectors to achieve ‘economic equilibrium’” by 2030.
As its economic drive gathers speed, Abu Dhabi sees the need to simultaneously develop its property market to fill a significant gap between supply and demand.
JLL believes that the office market will be the first real estate sector to be served by these development initiatives as around 540,000 square metre (sq m) of office space are expected to be delivered by the end of 2010. A further 470,000 sq m are anticipated to enter the market next year.
“The total supply of office space across the Abu Dhabi metropolitan area is expected to almost double from its current level of 1.8 million sq m to approximately 3.6 million sq m by the end of 2013,” the report noted.
Retail spaces are likewise seen growing in the next two years, specifically expanding by nearly 55 per cent from the current stock of 1.42 million sq m to around 2.2 million sq m by 2013.
This growth in commercial floor space will follow the completion of new shopping centres both in the main Abu Dhabi island as well as in other districts such as Reem, Baniyas and Shahama, to name a few.
The tourism industry will also be boosted by the availability of new hotels in the UAE capital. JLL reported that the hotel supply will likely surge over the next few years as the emirate reposition its tourism sector.
“It is estimated that the total supply of hotel rooms in Abu Dhabi will double from its current level of 13,500 rooms to approximately 26,500 rooms by the end of 2013. Large scale tourism projects such as Saadiyat Island, Yas Island and Al Raha Beach will distinctly transform the hotel market over the next four years,” the company said in its report.
Demand for residential units to remain high
Despite the projected oversupply in other sectors, the residential property market will still be undersupplied in the next two years as it will take a while to bridge the gap between supply and demand, according to JLL.
With its various economic development initiatives, Abu Dhabi has become an attractive destination for expatriates from within and outside the region seeking to be part of its growing human resources sector. As a result, demand for accommodation has also been moving northward.
“The total demand for residential units is forecast to reach 277,000 by 2013 – an increase of approximately 52,000 units from 2009, while the anticipated supply by 2013 is forecast at 238,000 units, resulting in a deficit of approximately 39,000 units,” the report mentioned.
Delays and postponements of real estate projects have also added to the property woes in the capital where rents have not eased considerably unlike in its neighbouring emirate of Dubai.
Amid its natural wealth, Abu Dhabi has not been shielded from the blow of the global credit crunch. JLL said the emirate’s property market had not been resilient to the crisis with a number of realty projects halted by the end of 2008 because of cashflow problems.
The speculative nature of the property business in the emirate, as well as in other parts of the UAE, highly depended on pre-sales or off-plan purchases to finance yet-to-be-built residential projects. Consequently following the onset of the financial slowdown, liquidity concerns surfaced in the industry and thus, seriously affected the property market.
JLL added that developers are reviewing their project pipeline in an attempt to increase residential unit supplies in the capital. However, “a shortage of lower and mid-market housing stock is expected to continue for the next three to four years,” it said.
Regulating the property sector to promote transparency
The capital recently announced that it is seeking to finalise by the end of 2010 a new real estate law in a bid to tighten regulation in its property sector and eventually attract more investors.
Such initiative, JLL believes, will be critical not only in safeguarding the welfare of consumers and investors alike, but also in improving transparency in the emirate’s real estate industry.
“Since the market slowdown at the end of 2008, many investors have suffered financial losses through not exercising sufficient caution in making investments. The creation of the new real estate regulatory body and new legislation regulating escrow accounts requiring developers to obtain permits before booking sales will also help protect consumers going forward,” the company said.
JLL has enumerated the proposed laws that the Abu Dhabi government authorities are currently working on. These include a strata law, which would provide clarification of ownership rights; trust-account law, which will ensure that escrow accounts or pre-sales money will be protected and used in a specified manner by developers; law establishing the creation of a regulatory body such as the Real Estate Regulatory Authority (Rera) of Dubai; mortgage law that will protect financiers; and a law that will ensure developers have acquired the necessary titles and permits prior to launching a project.
Currently, JLL believes that the Abu Dhabi property market is on the right track despite the lack of a clear regulatory and legal framework. The report mentioned that there are more buyers than sellers in the emirate, specifically 25 per cent of investors surveyed said they have plans to purchase properties in the next 12 months while there are only 12 per cent who are considering selling their assets.
The property management services company added that investor sentiment towards Abu Dhabi has been relatively confident with the expectation that it will be one of the healthiest economies in the Middle East and North Africa region in the next two years.
Consider also reading:
Abu Dhabi rents remain stable: Landmark
Abu Dhabi set to showcase property model at Cityscape
Abu Dhabi’s strong liquidity flow propels realty sector
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