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Oil firms downsize in Abu Dhabi, fuelling office market imbalance

Oil and gas companies are downsizing their operations in Abu Dhabi, which is fuelling a supply-demand imbalance in the commercial real estate market, according to Cluttons.

Its Abu Dhabi Spring 2016 Property Market Outlook report also showed that after a year of stability in office rents across Abu Dhabi, they have now begun to slip in more secondary and tertiary locations, while some previously resilient Grade A schemes have also begun to experience rent declines.

Cluttons research showed that average Grade A rents remained unchanged at AED2,000 per sq m in the first quarter of 2016, while more secondary (AED1,200 per sq m) and tertiary stock (AED800 per sq m) experienced average rent falls of AED100 per sq m, marking the first decline in almost 18 months.

Faisal Durrani, head of research at Cluttons said: “Despite the stability at the top end of the market, a handful of prominent Grade A developments registered downward rental movement during the first three months of 2016.

"This reflects landlords’ acceptance of the challenging operating environment and it is these landlords that are likely to be best placed when growth eventually returns.

"Positively, the limited availability of the Grade A office market in Abu Dhabi in comparison to Dubai has in part aided the market’s ability to withstand the oil price shock and the ensuing slowdown in business activity. However as is the case with the residential sector, the atmosphere in the office market is increasingly cautious."

According to the report, in addition to the ongoing trickle of completions, office space is also being returned to the market by oil and gas firms, which is fuelling a supply-demand imbalance.

Durrani added: “It is our expectation that further average office rent falls of around 5-7 percent are likely before the year is out, in addition to a raft of lease incentives, unless oil prices stage a major comeback; however this appears unlikely at this stage.

"The recycling of space through consolidation activity is something we're keeping an eye on as the supply-demand imbalance may well widen further this year, exacerbating the quieter conditions now bedding in."

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