Businesses in the UAE are taking advantage of recent commercial real estate trends by upgrading to higher quality premises.
The UAE, like most economies, has been impacted by the recession in recent years, with its real estate sector bearing brunt of the slowdown. Real estate has been at the forefront of development in UAE for last five years with Dubai leading the market until 2008, largely due to the increase of foreign ownership in that market. In Abu Dhabi, the property market for foreigners is currently operating on an off-plan basis. Apartments and villas are being offered on a leasehold basis without corresponding title of land.
The commercial real estate market in Abu Dhabi currently offers some notable opportunities for companies looking to upgrade their premises to new higher quality developments, which are due to be handed over imminently in investment zones. About 182,000 square metres of office gross leasable area (GLA) has been added to the Abu Dhabi metropolitan area during the first quarter of this year, according to a recent report by Jones Lang Lasalle. This brings the total office stock to approximately 2.7 million square metres. In Al Ain, housing rental rates are also dropping as a result of new supply and tenants relocating back to Dubai or Abu Dhabi as rents have adjusted downwards. The Al Ain office market remains stable with healthy demand due to a number of new businesses setting up and a lack of adequate supply in the sector.
The report also reveals that vacancy rates in Abu Dhabi have risen to about 30% and are expected to increase further as new supply comes on stream. Several new large scale office projects are scheduled for delivery in 2012. The majority of office demand in Abu Dhabi continues to come from tenants looking to upgrade from existing premises, rather than business establishing new options or major expansions. Also, the decrease in residential rental rates and the availability of better quality housing should have a positive impact on demand for office space in Abu Dhabi, making it a more attractive option for companies looking to relocate, or expand their offices in Abu Dhabi.
A recent report by Jones Lang Lasalle reveals a number of trends shaping Dubai’s office market. First, there has been limited new office supply entering the market over the first half of the year. Asking rent prices for prime office space remained flat in the second quarter of this year, however, secondary rental prices have softened. Occupier consolidation remains a key focus, and in line with global trends, portfolio optimisation has been noticeable in Dubai during the first half of the year. Larger companies continue to show interest in upgrading premises with more flexibility in their leases. The report also shows a strong demand for retail outlets in the top-performing malls like Dubai Mall and Mall of the Emirates, however, the retail market is becoming increasingly two-tier, and older, less popular malls are seeing weekend demand from consumers and retailers, with mall owners having to consider new marketing techniques and product proposition.
The total amount of city-wide office space in Dubai stood at approximately 6.1 million square metres at the end of the second quarter this year. Only 58,000 square metres of space were delivered in the second quarter of 2012, according to the Dubai Real Estate Market Overview Q2 2012 released by Jones Lang Lasalle. Average asking rent prices for prime office buildings have remained unchanged over the past year. Prime rental prices in Dubai International Financial Centre (DIFC) stabilised at AED 2,370 per square metre, while prime rate elsewhere in the Central Business District remained flat at AED 1,615 per square metre. Secondary office buildings, on the other hand, are expected to see further declines in rental prices through the second half of this year. This is largely due to new supply and weak tenant demand that is further exacerbating the supply-demand imbalance and the two-tier nature of the Dubai office market.
Abu Dhabi Commercial Bank’s (ADCB) Business Banking Division offers three types of commercial real estate products designed for a selected range of customers:
1- Commercial mortgage loan
A loan which is provided to companies either owned by a UAE national or, an expatriate. The loan can be used to purchase commercial properties like offices, shops, retail outlets, industrial properties or warehouse. The end use of these commercial properties should be towards the consumption of the company itself and cannot be used for investment purposes. The customer can obtain any of the mentioned commercial property either in Abu Dhabi or Dubai.
2- Rental discounting loan
This product is offered to UAE national customers who own a completed property who get rentals on yearly basis. Against the rents of the building, ADCB offers a loan of up to five times of the yearly rental against the rents of the building. The loan is provided after a proper checkup and evaluation is conducted.
3- Construction finance loan
This loan is designed to facilitate the needs of UAE nationals who want to construct commercial properties (offices, shops, residential villas or buildings) to be used for investment purposes in Abu Dhabi.
Structured loans are provided to UAE nationals who have already obtained a loan from the government to finance their house or commercial properties in Abu Dhabi. The customer might have an additional financing need which is above the amount provided by the government. Therefore, the bank will provide the additional amount to the UAE national under specific terms and conditions.