Cityscape speaks to JLL’s David Dudley about what to expect in the coming year for the emirate, given its wider Vision 2030 plan.
1. Despite a softening in the market, what is the current investor sentiment towards Abu Dhabi at the moment?
Many of Abu Dhabi’s government entities are going through a period of re-structuring in response to tougher economic conditions and prudent moves by Government to reduce spending amidst lower oil prices. Various mergers and job cuts, combined with reduced government spending have impacted employment and population growth and disposable incomes – leading also to a decline in demand and rents.
It is likely that there will be some further decline in certain sub-sectors over the short term due to the current decline in demand growth and sentiment, and in some sectors increased supply.
On the positive side, annual supply completions remain much lower than previous years, mitigating the extent of rental decline, with rental rates and sales prices expected to remain above the levels that existed in 2012, prior to the 2013-2014 upswing.
The recovery of Abu Dhabi’s real estate market is heavily dependent on the return of government spending to drive economic growth and sentiment. We are hopeful of some positive announcements on the return of selective government spending coming through this year. Investment opportunities remain, particularly for existing income producing assets – and we continue to see keen interest from investors taking a longer term view on the future growth potential.
2. What is the government doing to attract foreign real estate investment? Will we see an increase in free zones, or other new avenues for investment over the next few years?
Abu Dhabi’s master developers have been establishing high quality masterplanned communities, with very high quality design standards, public realm, estate management and amenities – such as Yas Island, Saadiyat Island, Masdar City, Al Maryah Island and Al Raha Beach. These schemes have been gaining momentum and offer strong potential for private sector developers to come in and develop high quality schemes, building off the major capital investment that has already occurred.
Another area for continued development is the freezones, including Abu Dhabi Global Market financial freezone at Al Maryah Island, Masdar City, twofour54, SkyCity and KIZAD. These are now gaining momentum and offer enhanced regulatory environments, further helping to stimulate demand growth.
3. What mega-projects do we expect to see coming up this year?
While government spending has reduced in the current period of low oil prices, mega projects continue. As examples:
• Significant activity is taking place at Yas Island – through Aldar and Miral in creating new leisure and entertainment attractions within a premium quality mixed-use development.
• Similarly, Saadiyat Island continues to develop with the Louvre getting close to opening and other high quality residential and hospitality projects in the pipeline.
• Al Maryah Island as Abu Dhabi’s new financial freezone and central business district continues to progress with Al Maryah Central Mall set to open next year.
• Masdar City continues to gain critical mass with a range of high quality residential and commercial projects currently underway.
4. How will tourism play a role in the next few years – given it’s a major plank in the Abu Dhabi Vision 2030?
Abu Dhabi continues to develop in to a world class visitor destination, with leisure tourism arrivals growing at a significant pace. Medium term hospitality demand trends are highly positive as the government's various large-scale initiatives to grow tourism continue, resulting in further major increases to annual visitor arrivals and length of stay.
Major projects include the major new airport terminal, further expansion to Etihad Airline, the delivery of world-class attractions on Saadiyat Island and Yas Island, the hosting of international class events and major campaigns by the Tourism Authority to promote Abu Dhabi internationally.
5. What real estate sectors would you say offer the most attractive investment opportunities in Abu Dhabi?
• Real estate investment opportunities remain in the current phase of the cycle as Abu Dhabi and the wider UAE remain a safe haven for investment relative to other parts of the region, with comprehensive plans to diversify the economy and establish a world class city offering.
• Value performance varies from sector to sector, from location to location and from scheme to scheme – and therefore while investment opportunities exist across each sector, it is important to be selective and align with end-user demand.
• Key opportunities are to acquire income producing assets or to enter in to build to suit arrangements with corporate tenants – targeting functional real estate in established locations which will sustain high occupancy levels.
• Residential developers have been adapting their product to adjust to current market conditions – including delivering a higher proportion of smaller units at a reduced construction cost to offer more affordable options to the market. Opportunities still remain in the luxury segment, particularly for well-planned product within integrated communities – but with a reduction in transaction volumes at the current time.
• There remains significant capital allocated for real estate investment – particularly from the wider GCC. The majority of this capital is targeting stabilised income yet there is limited available product to acquire within Abu Dhabi’s Investment Areas. We are also seeing increased interest from local investors to acquire income producing assets.
6. What is the outlook for the real estate sector in the next few years?
• Demand growth has reduced at the current time due to the impact of the decline in oil prices – affecting a significant proportion of GDP but also leading to reduced government spending and a decline in sentiment.
• Many of Abu Dhabi’s government entities are going through a period of re-structuring in response to tougher economic conditions and prudent moves by Government to reduce spending amidst lower oil prices. Various mergers and job cuts, combined with reduced government spending have impacted employment and population growth and disposable incomes – leading also to a short term decline in some sub-sectors of the market.
• However, while demand growth has reduced, so have annual supply completions, mitigating the extend of decline.
• The performance of Abu Dhabi’s real estate market is heavily reliant on government spending on major capital projects and economic development. Continued government spending into new projects and diversification towards non-oil related projects will help revive demand and drive recovery. We are hopeful of some positive announcements during the year signaling the return of selective government spending.
• There are signs that Dubai is currently reaching the bottom of its real estate market cycle. As Dubai’s market recovers we expect this to have a positive impact on sentiment in Abu Dhabi. This, combined with the return of government spending in Abu Dhabi and the government adapting to a period of lower oil prices by reducing the costs of running the economy, will lead to a short-term recovery of Abu Dhabi’s real estate markets.
• Medium to long term growth prospects remain highly positive as the government remains committed to the 2030 Vision – to establish a world class city offering, supported by major economic development initiatives to diversify the economy, improve transparency and attract new demand.