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Abu Dhabi office demand weakens in era of cheap oil

Demand for office space in Abu Dhabi has reduced due to the decline in oil prices directly impacting the oil related sector and indirectly impacting other sectors due to a slowdown in government spending, according to a new report.

JLL said in its latest Abu Dhabi Real Estate Overview report that large-scale requirements continue to be driven by the government sector and state-owned enterprises with the bulk of private sector demand focused on smaller office suites.    

The report said that total office stock in the UAE capital reached approximately 3.4 million sq m during the first quarter of 2016. An additional 286,000 sq m GLA is expected to be delivered by the end of 2016, it added.

JLL said the office market wide vacancy rate currently stands at 20 percent but is expected to increase due to the delivery of further office space and the slowdown in demand growth.

In spite of weak demand, average Grade A office rents remained stable at AED1,850 per sq m due to limited vacancy within high grade stock. However, Grade B office rents decreased by 5 percent in Q1, averaging AED1,120 per sq m.

David Dudley, head of Abu Dhabi Office at JLL MENA, said: “The office market has been the most affected by the decline in oil price and government spending. There are signs of oil companies and government entities reducing headcount and office space requirements.

"However this is mitigated by minimal increases to new speculative supply – the majority of new office buildings are either pre-committed to end users or are in secondary locations."  

He added: “While we are going through a period of weaker demand, Grade A Office Rents have generally remained stable, with limited vacancy in high quality buildings. Market-wide vacancy will continue to increase as further office space comes on stream during a period of weak demand. However, Grade A vacancy remains relatively low and therefore we expect Grade A rents to be broadly upheld."

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