2018 - A YEAR IN REVIEW
FOREWORD Cavendish Maxwell is a highly respected independent firm of chartered surveyors and property consultants, focusing on property services throughout the Middle East and Africa. Established in 2008, Cavendish Maxwell is now one of the most influential property consultancies in the region. As a fully qualified member firm of the Royal Institution of Chartered Surveyors (RICS), and with extensive knowledge of the region, Cavendish Maxwell has the necessary experience, expertise and insight to deliver property advice of the highest standard. Our reports are used for loan security, audit, insurance reinstatement, dispute resolution, risk management, debt recovery, performance analysis, project financing, development strategy and government initiative implementation. We provide a comprehensive range of property services across all our departments, each of which is headed by highly skilled, experienced and fully qualified RICS chartered surveyors. Our various teams provide valuation, agency, advisory, management, capital investment, research and building consultancy services across all property types and sectors. Our 2018 review provides a summary of the Abu Dhabi residential market, as well as a sector-based focus on commercial, retail and hospitality markets in Abu Dhabi and what can be expected in 2019. The report also highlights price movement, rent and yield statistics, and upcoming supply of residential properties provided by Property Monitor, a real estate intelligence platform powered by Cavendish Maxwell.
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
Abu Dhabi Market Report
CONTENTS 4
Residential Market Overview
12
Office Market Overview
14
Retail Market Overview
16
Hospitality Market Overview
18
Methodology
32
3
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
PRICE PERFORMANCE
“
According to Property Monitor, apartment prices in Abu Dhabi investment zones declined by 5.8% in the past 12 months, while villa/townhouse prices declined by 6.2% over the same period. Apartments in Al Reem Island, Al Raha Beach and Al Reef Downtown experienced average annual declines of more than 5% in sales prices, as of December 2018. Among villa/townhouse developments, Al Reef registered the highest decline of 7% over the last 12 months. The market continues to be challenging, despite off-plan transactions continuing to dominate transaction activity. Investors have shown growing interest towards lower priced inventory, due to higher expected yields and flexible payment plans offered by developers. Many potential buyers continue to wait for the market to soften further in H1 2019.
APARTMENT PRICE PERFORMANCE Saadiyat Beach Residences
-3%
-5.6%
AED/sq ft
% change
Al Raha Beach Al Reem Island
-3.1%
-5.1%
-5%
-7.6%
Al Ghadeer
-2.7%
-4.7%
Al Reef Downtown
-3.6%
-6.2%
-8%
-7%
-6%
-5%
-2%
-3%
-4%
-1%
0
200
600
800
Average Price
Quarterly Q3-Q4 2018
Yearly Q4 2017-Q4 2018
400
1000
1200
1400
1600
Source: Propertymonitor.ae
VILLA/TOWNHOUSE PRICE PERFORMANCE
-3%
-5.7%
Al Reef Villas
-3.7%
-7%
Al Raha Gardens
-3.3%
-5.7%
-8%
-7%
-6%
-5%
-4%
Yearly Q4 2017-Q4 2018
4
AED/sq ft
% change
Saadiyat Beach Residences
-3%
-2%
-1%
0
Quarterly Q3-Q4 2018
200
400
600
Average Price
800
1000
1200
1400
1600
Source: Propertymonitor.ae
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
RENT PERFORMANCE
“
Apartment and villa/townhouse rents continued to decline in Q4 2018. Annual decline in residential property rents across Abu Dhabi investment zones averaged 8.2% for both apartments and villas/townhouses. Apartment rents in Al Reem Island and villa rents in Al Raha Gardens showed a decline of more than 8%. Proactive landlords offered discounted rental rates and accepted payments in multiple cheques to retain tenants and avoid vacancy rates, particularly in lower quality buildings. As a result of declining rental rates, 2018 was a tenant-led market, with new opportunities to upgrade to larger better-quality units in popular locations. This trend is expected to continue in H1 2019, with the upcoming supply adding further pressure on rents. More than 8,000 units are scheduled to be delivered in investment zones alone.
APARTMENT RENT PERFORMANCE Saadiyat Beach Residences
-5.6%
-9.9%
Al Reef Downtown
-5%
-10.3%
Al Raha Beach
-7.9%
Al Ghadeer
-2.7%
-4.7%
-3.6%
-8%
-12%
Studio
Rent (AED/annum)
Al Reem Island % change
-5.1%
-7.6%
-10%
-8%
1 BR
-4%
-6%
2 BR
-2%
-0%
40000
0
80000
12-month % change Q4 2017-Q4 2018
1200000
1600000
Source: Propertymonitor.ae
VILLA/TOWNHOUSE RENT PERFORMANCE -5.1%
-8.8%
Al Reef
-6.1%
Al Raha Gardens
-5%
-8.1%
-10%
3 BR
Rent (AED/annum)
% change
Saadiyat Beach Residences
4 BR
-8%
5 BR
-6%
-4%
-2%
-0%
0
100000
12-month % change Q4 2017-Q4 2018
200000
300000
400000
Source: Propertymonitor.ae
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2018 C O M P L E T E D S U P P LY
“
A n e s t i m a t e d 7 , 2 0 0 re s i d e n t i a l u n i t s w e re handed over across Abu Dhabi in 2018. More than 4,500 of these were in investment zones.
The key locations for completed supply in investment zones were Al Reem Island, Yas Island and Al Reef, with over 3,800 units being handed over in 2018 in total. The majority of residential stock handed over was in Al Reem Island and Abu Dhabi City.
APARTMENTS
AL REEM ISLAND
74%
VILLAS/TOWNHOUSES
26%
ABU DHABI CITY
PROPERTY MONITOR
SUPPLY TRACKER Supply completed in 2018 <400 1,200+ Source: Propertymonitor.ae
6
401-800
801-1,200
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
AL RAHA BEACH
YAS ISLAND AL REEF
MASDAR CITY
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2019 U P C O M I N G S U P P LY
â&#x20AC;&#x153;
Scheduled upcoming supply for 2019 is estimated to be over 11,000 apartments and 1,700 villas/ townhouses, across both investment zones and Abu Dhabi Mainland. Over 7,000 apartments of the upcoming supply are expected to be handed over on Al Reem Island, Al Raha Beach and Saadiyat Island. Around 1,400 villas are under construction on Saadiyat Island and Al Samha. More than 2,000 residential units, including both villas/ townhouses and apartments, are scheduled to reach completion in Abu Dhabi Mainland. The actual materialisation rate may be lower, due to project delays and phased delivery by developers.
APARTMENTS
87%
VILLAS/TOWNHOUSES
13%
AL MARYAH ISLAND
PROPERTY MONITOR
SUPPLY TRACKER Supply scheduled to be completed by end of 2019 <500
501-1,000
1,501-2,000
2,000+
Source: Propertymonitor.ae
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1,001-1,500
ABU DHABI CITY
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
AL SAMHA
SAADIYAT ISLAND
YAS ISLAND
AL REEM ISLAND
AL RAHA BEACH
MASDAR CITY KHALIFA CITY
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2018 - A YEAR IN REVIEW
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Abu Dhabi Market Report
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2019 - OUTLOOK
Residential property sales prices and rents in Abu Dhabi are expected to continue to decline further in H1 2019. However, the rate of decline is expected to slow towards the end of the year. Impact of flight to quality and market corrections, particularly in developments that have been historically overpriced, is expected to be more pronounced in H1 2019. Landlords are also expected to continue to offer flexible lease terms in order to maintain existing tenancies and reduce the risk of long-term vacancy. 2019 is expected to bring a market shift from off-plan sales to the transaction of mid-market residential plots in investment zones, where end-users, including expatriates, can purchase plots and custom-built properties within their budgets. A recent example of this was Aldar, selling over 800 vacant plots to Emiratis and expatriates in its Alreeman project, located in the investment zone of Al Shamka.
FACTORS IMPACTING THE RESIDENTIAL SECTOR IN 2019
Increase in oil prices
Proactive landlords/ developers
RESIDENTIAL SECTOR
Government spending on infrastructure
Handover of new supply
Employment growth
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
OFFICE MARKET OVERVIEW TOTAL GLA IN MILLION SQ M FOR OFFICES 2016-2019
Demand from tenants for fitted and high quality space at reasonable rental rates increased as companies continued to minimise capital expenditure. However, blue-chip tenants, as well as government/ quasi-government agencies retained their appetite for larger shell and core space.
3.2
The majority of existing office stock is located in the Central Business District (CBD) and northern parts of Abu Dhabi Island, including off-island locations such as Al Maryah and Al Reem Island. Completions in 2018 included Leaf Tower offices [Built-up Area (BUA): 475,000 sq m] and Wafra Commercial building (BUA: 23,225 sq m) in Al Reem Island. Handover of office supply in 2019 is expected to be delayed as developers remain cautious due to reduced demand.
3.5 3.4
3.1 3
2016
2017
3.32
3.3
3.54
3.6 3.53
Aside from the oil and gas sector, the majority of demand for acquiring office space in Abu Dhabi was from the general trading, leisure and hospitality sectors.
3.71
3.7
3.75
3.8
Many companies chose to downsize and consolidate in 2018, particularly within government agencies and financial services. It was a tenant-led market, with landlords of grade B and older office buildings offering lower rents, more incentives and flexible payment plans to retain tenants.
3.17
In 2018, Abu Dhabi registered a decline in demand for office take-up and upgrades. This was due to limited business growth and low oil prices. However, a potential economic recovery is expected in 2019.
2.9 2.8
2014
2015
2018
2019
Office Supply ( GLA million sq m)
OFFICE RENTALS - Q4 2018 AED/sq m/annum Prime Stock
Minimum 1,500
Maximum 2,500
Quality Stock
700
1,300
Mature Stock
500
800
Note : The minimum rate represents the rental rates for shell and core units, whereas maximum refers to fitted office space in the area. In case of prime stock, the range of rental rates is for fitted space only.
GOVERNMENT INITIATIVES IN OFFICE SECTOR 2018
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The Dual-license initiative announced by the Abu Dhabi Department of Economic Development (ADDED), enables companies operating offshore in the emirateâ&#x20AC;&#x2122;s free zones to carry out their commercial activities onshore in Abu Dhabi, Al Ain and Al Dhafra regions. The expansion of the Tajer Abu Dhabi license package, which was introduced in 2017, allows GCC/UAE residents to start businesses with a local partner without the need for office space.
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2019 - OUTLOOK Initiatives like the Ghadan 21 economic stimulus package, Dual-license and the expansion of the Tajer Abu Dhabi license package is expected to positively impact market sentiment in 2019, though actual impact on demand from foreign companies and SMEs is expected to materialise in the medium- to long-term. Meanwhile, rents are expected to continue to face downward pressure in H1 2019, particularly in grade B and older office buildings with lower-quality specifications, as new supply enters the market. Landlords are also expected to use this period of declining rents to renovate and upgrade their existing facilities.
FACTORS IMPACTING THE OFFICE SECTOR IN 2019
Increase in oil prices Proactive landlords offering flexible lease terms
Ghadan 21 stimulus package
OFFICE SECTOR
Dual-license initiative for free zones
Consolidation of companies
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
R E TA I L M A R K E T OVERVIEW Since the start of 2018, consumer spending has been adversely impacted by employment instability and a reduction in allowances. Retail owners offered rent-free periods, flexible leasing terms and rebates to retain tenants during this period of declining rents and demand in the sector. However, the F&B sector continued to maintain strong demand throughout the year. Abu Dhabi Mainland comprises a wide spectrum of retail formats, from individual shops integrated into residential and commercial buildings, to super-regional malls. In investment zones such as Al Reem Island, Al Maryah Island, Saadiyat Island, Al Reef and Al Raha Beach, retail demand is being catered for by regional and super-regional malls, having a Gross Leasable Area (GLA) of more
than 27,871 sq m, with very few community-level shopping centres available. Retail units in both existing and newly completed developments faced difficulty in retaining occupancy levels and attracting new tenants, particularly in newly handed over developments in off-Island locations such as Oceanscape in Al Reem Island. Supply is expected to increase in the medium term with the addition of new regional malls such as Reem Mall and Al Maryah Central Mall, with more than 92,903 sq m GLA expected to reach completion by 2020. Other proposed projects include the extension of Marina Mall and City Centre Al Jazeera.
GLA FORMAT RETAIL SPACE DISTRIBUTION (SQ M) Upcoming Retail GLA until 2020 GLA (9,290 sq m and above)
Existing Retail GLA GLA (9,290 sq m and above)
5.3%
5.7%
11.9%
16.3%
44.0%
33.3%
9,290 - 27,870
27,870 - 55,742
TOTAL GLA IN MILLION SQ M FOR RETAIL 2019-2020(F*) 400,000 300,000 200,000 100,000 0
365,000
168,000
2019
2020
9,290 - 13,935
13,935+
82.2%
55,742 - 92,903
92,903+
RETAIL RENTS - Q4 2018 Shop Rents in Residential Areas (AED/sq m/annum) Minimum Location Maximum Main Abu Dhabi Island 1,938 2,583 Al Reem Island
1,507
1,938
Mussafah
969
1,399
Prime Shop Rents in Malls (AED/sq m/annum) Maximum Minimum 2,500 3,100
Location Main Abu Dhabi Island Off-Island
*Forecasted
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Source: Cavendish Maxwell 2018
2,000
3,100
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2019 019 O U T L O O2K
- OUTLOOK
In H1 2019 the retail market is expected to remain challenging with rental rates continuing to fall, albeit at a slower rate than in 2018. Retail competition is expected to increase with the addition of Al Maryah Central Mall. Consumer spending may also continue to remain subdued in 2019 due to employment cuts in some sectors and the readjustment of salaries. The Abu Dhabi retail sector is expected to experience increased segmentation in the tenant mix, with a focus on F&B and entertainment facilities as well as more international brands, particularly among the established city centre malls, to increase footfall.
FACTORS IMPACTING THE RETAIL SECTOR IN 2019
Inflation rates
Upcoming supply
Tourism RETAIL SECTOR
Expatriate salaries and incentives
Experiential offerings
1515
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
H O S P I TA L I T Y M A R K E T OVERVIEW The end of 2018 saw a partial recovery in oil prices and new incentives such as tax refund schemes and reduced tourism/municipality fees, which will contribute to positive sector performance in the long-term. Ideally, this should also reduce further declines in the hospitality sector and increase its contribution to the UAEâ&#x20AC;&#x2122;s GDP.
450
10%
400 350
5%
300
-5%
200
-7.20%
150 50
-10.99%
-11.80%
100
According to official figures, the cityâ&#x20AC;&#x2122;s room inventory has increased by 8.9%, to a total of 29,214 rooms as of November 2018. All additional units during 2018 were positioned within the luxury and upper-upscale sectors.
407.3
359.2
328.5
292.4
2014
2015
2016
2017
2018
-20%
% Change
ABU DHABI CITY HOTEL OCCUPANCY PERFORMANCE 2014-2018 80%
10%
78% 76%
8%
% occupancy
4.7% 3.28%
72% 70%
0% -2%
68% 66%
-4%
-4.20%
64% 62% 60%
According to data collated by STR Global and Cavendish Maxwell, a total of 282 rooms are expected to be delivered in 2019, with a further 879 rooms in 2020. These figures are based on hotels that are currently under construction.
74.4%
75.2%
72.1%
74.9%
77.4%
2014
2015
2016
2017
2018
-6% -8% -10%
% Change
Occupancy
Cavendish Maxwell is currently tracking 4,322 hotel rooms that are either under construction or in the planning phase of development.
4% 2%
0.9%
% changce
6%
74%
Future Supply
ABU DHABI EXISTING AND UNDER CONSTRUCTION SUPPLY TRENDS 32,000
8%
30,000
6%
29,000 28,000 0.97%
2.48%
27,000 26,000
4%
2.98% 2.12%
1.35%
2% -0%
25,000
-2%
-1.60%
24,000
-4%
23,000 2014
2015
2016
2017
2018 2019(F*) 2020(F) 2021(F)
Occupancy *Forecasted
% Change
% changce
Number of rooms
10%
8.9%
31,000
16
-1% -15%
409.1
ADR
Notable openings during 2018 included the Jumeirah Saadiyat Island Resort, Rixos Saadiyat Island, Grand Hyatt Abu Dhabi Hotel & Residences, Emirates Pearl and Saadiyat Rotana Resort & Villas. During 2018, Abu Dhabi witnessed continued declines in average daily rates (ADRs). Abu Dhabi City hotel ADRs, which stood at AED 328 in 2017, are down 11% at AED 292. However the decline in ADR levels in the Abu Dhabi resorts sector has not been as steep, declining only 1.7%, from AED 639 in 2017 to AED 629 in 2018.
0%
-0.80%
250
% changce
AED
Abu Dhabi (excluding the Al Ain and Al Dhafra regions) experienced steady growth in demand throughout 2018. As of November 2018, the total number of guests recorded increased by 4.6% compared to the same period in 2017, from 3.87 million to 4.04 million, according to the Abu Dhabi Department of Culture and Tourism (ADDCT).
ABU DHABI CITY HOTEL ADR PERFORMANCE 2014-2018
Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
2019 - OUTLOOK Despite rising guest numbers and minimal forecasted supply to be delivered in 2019, Abu Dhabi’s hotel market is expected to continue to face downward pressure as ADRs fall. Established hotels should focus on refurbishments in an effort to maintain their market share when competing with newer hotels. Abu Dhabi’s hotels should continually look to secure new sources of demand though effective marketing campaigns and adapt to the changing market conditions. Tourism infrastructure has been outlined as a key focus for the government as they continually look to increase demand in the sector. This should help offset further declines in rates and keep Abu Dhabi competitive.
FACTORS AFFECTING THE HOSPITALITY SECTOR IN 2019
Increased tourism infrastructure investment; VAT refund for tourism Upcoming supply
HOSPITALITY SECTOR
Targeting new markets; additional recreational facilities and events
Franchising/ branding
Operational efficiencies
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Abu Dhabi Market Report
2018 - A YEAR IN REVIEW
METHODOLOGY Sale prices and rents are derived from Property Monitor (www. propertymonitor.ae), a comprehensive real estate platform established in 2014 to provide real-time, market-wide access to transactions and trends. Working with agencies, banks, developers and corporate investors, it provides a deeper insight into real estate advisory, investment, and lending activities.
Supply projections for residential projects are based on regular tracking of construction status, new launches, delays, etc. This is carried out through site inspections as well as discussion with developers, contractors, in-house building consultancy team and related government entities.
The average sales price per sq ft is based on the Property Monitor Index that incorporates signed contracts, registered transactions, valuations & listings verified by Cavendish Maxwell valuation department.
STRATEGIC CONSULTING & RESEARCH Our consulting and research team includes seasoned professionals with international advisory experience offering bespoke and localised services. Through them, our clients immediately gain access to our knowledge base, technical expertise and highly skilled individuals, making us the development partner of choice. The team leverages their global expertise to offer tailored advice to clients in the MENA region covering all real estate classes including residential, office, hospitality, education, mixed-use developments, among others. The team partners with developers, investment companies, family offices and the government to deliver actionable development and real estate investment strategies aligned with prevailing and forecasted market conditions. The work of the advisory team is supported by Property Monitor, the UAEâ&#x20AC;&#x2122;s only data source offered by RICS accredited property professionals, as well as multidisciplinary valuation and investment departments.
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Our documents and advice meet banking and audit criteria, proven by our presence on over 40 bank panels across the Middle East.
Disclaimer: The information and analysis contained in this report has been obtained from is based on information from a variety of sources generally regarded to be reliable and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons. The report and analysis does not purport to represent a formal valuation of any property interest and must not be construed as such. Such analysis including forward looking statements are opinions and estimates only and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these variables can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report.
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STRATEGIC CONSULTING & RESEARCH KEY SERVICES MARKET RESEARCH
PORTFOLIO STRATEGY
EDUCATION ADVISORY AND VALUATION
FEASIBILITY STUDIES
DEVELOPMENT RECOMMENDATIONS
PROPERTY DATA
HIGHEST AND BEST USE STUDIES
MARKET ENTRY STRATEGY
ADVISORY SERVICES
SITE ANALYSIS
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info@cavendishmaxwell.com
www.cavendishmaxwell.com
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