A quantum leap for capital assets.

Real estate development has become one of the key non-oil related industrial pillars underpinning Abu DhabiAAEs rapidly diversifying economy. The

positive indicators emerging from the property sector have also provided a bankable success story worthy of international broadcast which positions

the UAE's capital as one of the most innovative business opportunists within the Middle East region. While oil production remains the predominant

source of income, buoyed by a spiking market that still rests well beyond the US$ 100 per barrel marker, the Abu Dhabi Government

deliberately encouraged a shift toward alternative areas of industrial investment, intent on spreading the origins of revenue flow into the economy.

Foresight is the order of the day, as oil prices struck horrifying triple-digits, programs to develop and implement cheaper, cleaner energy sources

were instantly fast tracked by nation states desperate to reduce their dependence on hydrocarbons. Meanwhile, considered the world's fourth largest

oil producer, Abu Dhabi was already ahead of the game pursuing major carbon reduction initiatives at both a national and international level. There is

the Masdar Institute, researching alternatives energies and the carbon free city of the same name that goes with it; a veritably Verde urban planning

framework in the shape of Plan Abu Dhabi 2030 with green building standards and sustainability running to the core and of course radical changes in

industrial focus. All in harness with a life impacting transformation program, which covers everything from social responsibility and infrastructural

upgrade, through to economic and legislative reforms?

One could term this a composite social, industrial and environmental revolution and the effect has been to attract the investment eyes of the world

toward this work in progress. Equally an impressive procession of overseas investments and acquisitions made by the Government's investment and

development arm Mubadala have also helped to elevate Abu Dhabi's international image.

Returning specifically to real estate, according to C B Richard Ellis's Abu Dhabi Market Report, the second quarter of 2008 was a watershed for the

property industry. The first fundamental evidence being the unqualified success of Cityscape Abu Dhabi 2008 an event which attracted visitor

attendance double that of the previous year. Statistics released at the Cityscape event, confirmed that projects to the value of US$ 327 billion had

been announced in the Emirate since a similar point in 2007. Among the US$ 190 billion top ten major league projects; Khalifa City, Yas Island and

Burooj Properties represented a combined total in excess of US$ 100 billion. A quite staggering figure when one considers that the total value of all

New York City property in 2006 was US$ 802.4 billion; the Time Warner Center being the property with the highest-listed market value in the city at

the time, at US$1.1 billion.

CBRE goes on to comment, "As the property sector in Abu Dhabi gains momentum, strong investment participation by both the Government and an

increasingly bullish private sector has become more apparent." However, moving forward through the gazette of CBRE's research observations, it

would seem that there is much to do in order to achieve a balanced portfolio.

For instance, the Abu Dhabi office market remains heavily undersupplied with a vacancy rate of circa 1 per cent. Consequently, by the close of Q2

2008 prime rents had reached AED 3,400 per square metre, an additional increase of 20 per cent.Based on collected data the indications are that a

supplementary office supply of around 84,940 square metres is expected to be delivered to market within the next six months. However, it is believed

that at least 75 per cent of this stock is already pre-let to various tenants. Of this total, only the Al Mamoura B building by Aldar offers 23,000 square

metres that can be accurately classified as Grade AaeAAAE space.

Abu Dhabi is currently experiencing unprecedented demand for commercial office accommodation, but with an additional 1,700,000 square metres

of office space anticipated to arrive between 2009 and 2011, the continuous upward pressure on rentals should be relieved. The additional increment

of office space is likely to satisfy prevailing latent demand, and offer greater opportunity and appeal to international occupiers adhering to corporate

standards.

As the potential for the development of new suburban office districts becomes more evident, a trend toward clustering is expected. Real estate

development is now an established long term activity, with the likelihood that new industry specific districts focused on capital and technology

intensive or knowledge-based activities will be created.

Retail is of course a staple of any commercial property arena and the retail market was characterized by increasing weight of demand, escalating

rental rates and decreasing vacancy. Rental levels for retail in shopping malls exceeded AED 5,000 per square metre, amounting to an increase of

35 per cent on the first quarter, nevertheless the retail sector in Abu Dhabi continues to perform well with an expanding catalogue of international

brands entering the market. A large volume of space dedicated to serviced retail components is expected to be made available in parallel with the

evolution of large scale developments both on and off-island Abu Dhabi (e.g. Reem Island, SaAAEadiyat Island, Yas Island, etc.).

Further retail growth is anticipated in 2009 with the opening of the first shopping centre off Abu Dhabi Island. As the scale of development taking

place outside the existing CBD increases, the conclusion is that these locations will present an attractive environment for modern retail developments,

based on the large number of residential components in the vicinity.

With supply shortages across all forms of property, the residential sector appears to the most critical case. A study published by the Abu Dhabi

Chamber of Commerce and Industry predicts that Abu Dhabi could face a minimum shortfall of 20,000 housing units by end 2008, applying further

pressure on rents. Apartment rental rates uplift over that past year is as follows: Studio (41.03 per cent), 1 bedroom (38.46 per cent), 2 bedroom

(39.39 per cent)

The widespread shortage of good quality inventory across the various categories of real estate, taken in conjunction with pent-up demand and the

prospect of strong immigration growth; indicate little to change incendiary market dynamics. From an international investment perspective, the currently

limited number of designated Freezone areas, make it important that new developments take the opportunity to secure this special status from the

Government. Abu Dhabi's proposed structural and legislative changes need to proceed at pace it would seem, to both capitalise on and sustain

international demand

Copyright Andy McTiernan. All rights reserved.

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