Other BriefingsAbu Dhabi’s Office Space: Addressing the Demand for Grade A Assets
Abu Dhabi is experiencing a significant increase in demand for office space, driven by a growing private sector, rising business confidence, and an influx of foreign direct investment (FDI). According to a recent report by Savills, this surge in demand is leading to a critical need for more Grade A office assets in the UAE’s capital.
Growing demand and limited supply
The city’s office market is currently challenged by a lack of premium office spaces, with existing Grade A assets like the Abu Dhabi Global Market (ADGM) and the International Tower operating at approximately 95 percent occupancy per Savills. This shortage is exacerbated by the continued economic expansion and diversification efforts in the region, particularly within established business hubs like Maryah Island, the Capital Centre, Masdar City, and Al Raha.
Savills’ report highlights that there is over 90,000 square meters of Grade A office space in the development pipeline, expected to be completed by 2026. Key projects include The Link Masdar City, Masdar City Square, and the HB Office Tower by Aldar, all of which are already showing strong pre-commitment rates due to high demand.
Economic momentum
Abu Dhabi’s economy has been on an upward trajectory, with a reported 3.1 percent growth last year, reaching its highest level in a decade at Dh1.14 trillion (US$310.63 billion) in GDP. This growth has been driven largely by the non-oil sector, which expanded by 9.1 percent year-on-year. Key contributors to this growth include construction, finance and insurance, and transportation and storage sectors, which together accounted for over 53 percent of the emirate’s GDP.
This economic diversification is not only increasing demand for office space but is also driving the need for industrial and logistics/warehousing facilities. Small and medium-sized enterprises (SMEs) are particularly interested in light industrial units due to their cost-effectiveness and scalability, with e-commerce and third-party logistics playing a crucial role in this demand.
Rising rents and investment influx
The growing demand for office space is leading to an overall increase in rental rates across Abu Dhabi. Grade A office spaces in prime locations have seen rental growth of around 10 percent compared to the previous year, with the central business district recording a 7 percent annual rise in the first quarter. ADGM, in particular, commands the highest rental rates in the market, with rents reaching Dh2,600 per square meter and experiencing a 30 percent annual growth.
A report from property management firm Asteco also points to a steady influx of private and corporate investments as a key driver of demand for high-quality office spaces. This has resulted in robust quarterly rental growth ranging from 3 percent to 8 percent, especially for new leases.
Government initiatives and prospects
Abu Dhabi’s real estate market is set for continued growth, bolstered by government initiatives and strong economic fundamentals. The recent tenfold expansion of the financial free zone’s jurisdiction to include Reem Island is a prime example of the government’s efforts to support the financial sector and attract more investment. Aldar’s planned expansion of the ADGM office tower and the development of a new business park on Saadiyat Island, due for completion by 2027, are further steps to address the growing demand for prime office spaces.
Additionally, Abu Dhabi continues to attract interest from high-net-worth individuals (HNWIs) and international investors, further driving up the cost of commercial real estate. The UAE is expected to see a record net inflow of 6,700 migrating millionaires in 2024, with many drawn to the emirate’s favorable business environment and high-quality real estate offerings.
Conclusion
Abu Dhabi’s commercial real estate market is undergoing significant transformation, driven by a combination of economic growth, increased FDI, and a robust demand for premium office spaces. While the current shortage of Grade A assets presents a challenge, ongoing and upcoming developments are poised to meet this demand, ensuring that the city remains an attractive destination for businesses and investors alike.
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