Despite the on-going drive for economic diversification in Abu Dhabi, the office market is yet to see any benefit, with weak, but stable demand levels leading to a stagnation in commercial rents, a report said.

With mixed availability of commercial space across the Abu Dhabi market, potential occupiers remain focused on prime Grade A stock, which is sustaining rents at the top end of the market, added Abu Dhabi Spring 2014 Commercial Market Outlook released by Cluttons, a top real estate consultancy.

Cluttons asserts that with flat rents persisting, occupiers remain in the driving seat and are in a position to cherry pick from a range of options, As a result, good quality space in more centrally located submarkets remains in high demand.

Rents for Grade A stock held steady at Dh1,850 ($503) per sq m during the first quarter (Q1) of 2014.

The overall weakness in the market raises the spectre not only for a widening gap in rents for prime and secondary (or tertiary) office space, but also for prime and secondary locations. No notable upturn in demand for office space is expected this year; however the steady stream of requirements, particularly from the public sector, will sustain Grade A office rents, the report said.

“We have witnessed a widening gap between Grade A and more secondary and tertiary office space in recent months and we expect this gap to widen further. With stable rents at the top end of the market, many occupiers are capitalising on the stability in rents by moving into space that they perceive to be of a higher quality,” said Steve Morgan, chief executive Cluttons Middle East.

“New Grade A stock in the form of Capital Tower at the Capital Centre and The World Trade Centre Office Tower and Landmark Tower on the Cornice are all anticipated to be absorbed rapidly as a consequence.”

The creation of the emirate’s first financial freezone at Sowwah Square is viewed as a positive move for Abu Dhabi’s office market. An internationally governed financial freezone is likely to aid in attracting larger international players to the market once the freezone is established officially.

This is expected to help evolve the emirate’s occupier base further and give momentum to the sustainability of the organic economic growth now taking hold, said Morgan.

In addition to this, a two tiered prime market is also likely to emerge with Sowwah Square commanding higher rents than comparable Grade A space elsewhere in the emirate.

Rents across Abu Dhabi’s industrial submarkets have also remained unchanged for three consecutive quarters. The focus of activity remains at Kizad, with land plots in particularly high demand as occupiers focus their expansion activities here. Furthermore, new occupiers continue to be drawn to Kizad by its attractive positioning, mid-way between Abu Dhabi and Dubai, the Cluttons report said.

Multi nodal transport hubs are paving the way for the industrial market’s future success and with the establishment of Etihad Rail’s main operational base in ICAD IV, Cluttons anticipates a sharp increase in occupier demand in this area as manufacturers and distributors look to position themselves in close proximity to the hub of the UAE’s first freight train line.

“The commercial market in Abu Dhabi remains stable, but improving economic conditions and critical infrastructure investments now coming through, we have a much more positive outlook of the market compared to this time last year,” Morgan concluded. – TradeArabia News Service