With the price of oil dropping from $108/barrel in June, to under $50/ barrel last month, the lower oil prices could lead to possible implications for the Abu Dhabi real estate market, according to property expert Knight Frank.

However, the market should be able to shrug off such concerns as the region's medium- to long-term prospects remain strong in addition to a limited office supply pipeline, it stated.

Knight Frank said prime office rents edged up in Abu Dhabi during the second half to Dh1,800 ($490) per sq m, whilst rental values for Grade A shell and core office space remained steady at Dh1,200 ($327) per sq m.

This has led to vacancy rates dropping for Prime and Grade A offices in the capital to 26 per cent, said Knight Frank in its review.  

Witnessing a marginal slowdown in the number of enquiries during the second half of 2014 (which may be due to companies reviewing the impact in falling oil prices), Knight Frank said nearly 80 per cent of enquiries were between 100 sq m and 500 sq m.  

"The overall effect on market rents over 2014 was minimal, but we could witness further improvements in headline rents, as little Prime or Grade A supply enters the market," it stated in the report.

The oil and gas segment dominated the commercial property scenario with 16 per cent absorption followed by the government sectors (15 per cent), which positively impacted the absorption of new accommodation in Abu Dhabi.

The leisure and hospitality sector witnessed an increase in the number of enquires, thus reflecting the government's efforts in diversifying the economy and growing this sector, stated the report.  

Knight Frank said market sentiment through the diversification of the economy continues to improve with mega projects, such as Khalifa Port, registering a growth rate of 24 per cent from January to September 2014, compared to the corresponding period in 2013.

The Midfield Terminal, which is due for completion on July 7, 2017, will likely impact the economy positively further, in both trade and tourism, it added.

On the new developments in 2014, the expert said Abu Dhabi Global Market (ADGM), the newly formed international financial centre in Abu Dhabi, had signed a 50-year lease for the Financial Building, Al Maryah Island which is owned by a Mubadala subsidiary.

The ADGM will be responsible for establishing a legal jurisdiction, registering entities (within the freezone) and regulating all financial services activity on the island in line with international standards and under English Common Law, it added.

Matthew Dadd, commercial leasing (Abu Dhabi) at Knight Frank, pointed out that the market dynamics continues to change in Abu Dhabi as the city expands further from the main island.

"Regardless of economic trends, Abu Dhabi real estate continues to offer a good depth and breadth of opportunities for occupiers, although there is a limited pipeline of new office accommodation which will impact the market in the coming years," he added.-TradeArabia News Service