According to Knight Frank, there is a shortage of prime or grade A office space which meets occupiers' needs in Abu Dhabi.
Abu Dhabi - Government sector and energy firms bide time before expansion .
Weaker oil prices have put brakes on the Abu Dhabi government's economic diversification plans. The rate of absorption of office space in the capital was, therefore, weak in the first half of the year.
The Abu Dhabi office market remains subdued due to weaker government and energy sector demand, says a report released by Knight Frank.
There were lesser enquiries for office space in the first six months of 2015. Companies that had hoped to win lucrative government contracts seem to have put their office space requirements on hold.
Of the 50 per cent of total inquiries, tenant demand was for offices between 200 sq m and 500 sq m. Fitted accommodation was most sought after among tenants enquiring about smaller offices.
While demand for new office space has traditionally been dominated by oil and gas producers and government sectors in Abu Dhabi, the slip in oil prices has resulted in a rebalancing of demand. Financial services (22 per cent), leisure/hospitality (15 per cent) and professional sectors (15 per cent) accounted for a majority of office take-up in H1 2015.
Construction on education, healthcare and infrastructure projects seems to be in full swing in Abu Dhabi, with the number of enquiries from the engineering and construction sector up in H1. The average size requirement for this sector was around 600 sq m. This is larger than most other sectors and is being driven by international companies' requirements for office space.
Matthew Dadd, head of Abu Dhabi commercial leasing, Knight Frank, says: "The Abu Dhabi office market remains subdued in terms of new commercial premises under development. The current supply does not meet occupier demand. However, we are still witnessing consolidation of operations and flight to quality."
According to Knight Frank, there is a shortage of prime or grade A office space which meets occupiers' needs in Abu Dhabi. As a result, vacancy rates for prime and Grade A offices were around 25 per cent.
Prime office supply due to be delivered or currently vacant includes Al Hilal Bank building, Al Maryah Island and part of Abu Dhabi Global Market Square (free zone). However, these projects do not fully meet market demand in terms of price point and location, the property consultancy reports.
There has been little change in office headline rents in H1. However, limited upcoming office supply means the market can dictate supply and demand in the near term. Rents are likely to see upward pressure in the next 12 months.
Prime office rents edged up in Abu Dhabi to Dh1,900 per sq m, while rents for Grade A shell and core office space remained steady at Dh1,400 per sq m.