As the year winds up, additional supplies coming online in Abu Dhabi are continuing to mount pressure on sale prices and rentals, but the greatest concern perhaps is cash flow, rather the lack of it. However, even in tight liquidity conditions, selective funding may be available for developers of quality real estate in attractive locations.
"Debt finance remains very tight with banks remaining cautious to lend on speculative, high risk development projects. However, finance is more readily available where developers are able to demonstrate a secure income stream through securing long-term pre-lets with blue chip tenants," says David Dudley, regional director and head of Abu Dhabi, Jones Lang LaSalle (JLL) - Mena.
As the supply stream brings more units in the high-end segment, the odds are placed in favour of projects that come with a competitive edge. In the current situation, these would be the ones to stay well-positioned in terms of leasing. "In this increasingly competitive environment from the emerging over-supply, the most successful projects will be those where the developer can deliver all the key aspects of truly Grade A real estate on competitive lease terms to secure the best tenants," says Dudley.
Likewise, well located projects stand a chance. The possibility is that such developments would also stand out on quality and efficiency. "Location will remain fundamentally important but other key factors will include ensuring efficient access arrangements and car parking, delivering international grade technical specifications, ensuring efficient and functional floor-plates and building design, ensuring high quality common areas, committing to international quality asset management — as well as offering flexibility on lease terms to lock in the best tenants," contends Dudley.
JLL in a recent report highlights how additional supplies entering the market are, on the one hand, affecting rentals and sales prices but on the other are not enough to remedy the overall under-supply situation, especially in the lower to mid-market segments. "A key trend will be for households to upgrade their housing without increasing their costs. On the other hand, housing supply for the lower-end of the market will remain limited. The government is addressing this through various housing programmes," says Dudley.
Besides, a new ruling was recently issued by the government prohibiting businesses operating from residential villas beyond December 2011. "As this law gets enforced, it will release latent demand for purpose-built office space — to help landlords — as well as freeing up more residential stock for the market," Dudley forecasts.
The total current stock of 182,000 residential units is expected to reach 251,000 units by the end of 2013, according to Jones Lang LaSalle.