183 construction & real estate · construction material prices remain softer than dur- ... to...

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Construction & Real EstateEmphasis on the quality and sustainability of new projectsIntroducing increasingly sophisticated regulationsSignificant investment in infrastructure continuesNew mortgage regulations in effect since 2012

CONSTRUCTION OVERVIEW

Contracts awarded by the UAE reached $16.4bn in 2012

The UAE overtook Saudi Arabia as the Gulf’s largestconstruction market in terms of contracts awardedin 2012, with the biggest tender coming from AbuDhabi for the construction of a new terminal at theexpanded Abu Dhabi International Airport. In 2013,the UAE construction market continued to post growth,led by Abu Dhabi’s capital investments in infrastruc-ture, housing and health care facilities.

While neighbouring Dubai has made headlines forthe ups and downs in its construction sector, on anational level the industry’s focus is set to shift to thecapital city. “[Abu Dhabi will] become the centre ofthe construction boom owing to rising governmentsupport,” international research firm RNCOS stated inits “UAE Construction Outlook 2016” report.UAE RISING: Contracts awarded by the UAE reached$16.4bn in 2012, 4% more than Saudi Arabia, theGCC’s previous leader in construction awards, accord-ing to a 2013 report on the region from internation-al professional services firm Deloitte. The value of theUAE’s construction sector was forecast to grow by 4.5%in 2013, reaching $41bn, and continue to expandthereafter, topping $50bn and 10% of GDP by 2016.

Impressive growth in the sector is being fuelledprincipally by increased government spending ontransport and utilities, Deloitte reported. Additional-ly, the report stated, “A clear regulatory environmentand the governing of private sector investments ininfrastructure create a favourable investment climate.”

Energy and resource projects comprise 19% ofplanned construction spending, with Abu Dhabi’snuclear power plant estimated to cost a total of $30bn.Transportation projects account for an additional 13%of total UAE construction projects planned or underway. Abu Dhabi will spend around $6.8bn by 2017 ondevelopment of air transport infrastructure, includ-ing increasing capacity at its international airportfrom 12.5m passengers to 47m passengers annually.The $2.8bn tender awarded to a consortium includ-ing Turkey’s TAV Airports Holding to construct the

Midfield Terminal was the largest single contractawarded in the GCC in 2012. Already under construc-tion, the Etihad Rail project, which will connect theemirates to the region-wide GCC railway network, isvalued at almost $11bn. Another driver, residential con-struction, amounts to 3% of planned UAE construc-tion spending, buoyed by the announcement fromthe Abu Dhabi Executive Council of an initiative tospend some $2.7bn to replace 12,500 units of nation-al housing that were constructed before 1990.THE CENTRE OF DEVELOPMENT: Having tenderedseveral large-scale projects in the first quarter of2013 – including the high-profile Louvre Abu Dhabi– the emirate was on track to replace Dubai as themain driver of the UAE’s construction industry, the AbuDhabi Chamber of Commerce & Industry reported inApril 2013. In the first two months of 2013, Abu Dhabiawarded $1.5bn in construction contracts, nearly dou-ble the total of $767m in the fourth quarter of 2012.

Further, in January 2013, the Abu Dhabi ExecutiveCouncil announced plans to spend Dh330bn ($89.8bn)on development projects over the next five years. Thetotal value of the emirate’s construction sector hasbeen growing over the last decade, and reachedDh87bn ($23.7bn) in 2012, up from Dh26bn ($7.1bn)in 2005, according to figures from the Statistics Cen-tre - Abu Dhabi (SCAD). Growth rates, however, havebeen somewhat volatile. The value of the construc-tion industry in Abu Dhabi grew 4.4% in 2010, 0.9% in2011 and 5% in 2012, SCAD data showed. RETURN TO HEALTH: Abu Dhabi’s slate of plannedor ongoing projects is welcome news for regionalcompanies that have been operating below capacityin recent years as a result of the post-financial crisisglobal slump. While the industry grew in Abu Dhabiin 2012, the value of infrastructure and constructioncontracts awarded across the GCC region fell by near-ly 18% during the year to $51.9bn compared with the$63.4bn awarded the previous year, according to fig-ures from Middle East Economic Digest (MEED).

Growth in the sector isbeing driven mainly byincreased governmentspending on transport andutilities, with energy andresource projectsencompassing 19% of total planned construction expenditure.

The value of the UAE’sconstruction sector wasforecast to grow by 4.5% in2013, reaching $41bn, andis expected to continue toexpand going forward,topping $50bn and 10% ofGDP by 2016.

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Continued expansionInfrastructure investment drives sector growth

www.oxfordbusinessgroup.com/country/Abu Dhabi


“After the highs and lows of recent years, the UAEconstruction market is now more stable,” said ChrisSeymour, head of property for the UAE at EC Harris,told Construction Week Online in January 2013.

In a report on the industry, EC Harris forecast theUAE’s construction sector would return to near fullcapacity for the first time since 2009-10. Thanks toslackening demand, tender prices fell by 3% in 2011,but stayed stable in 2012. In 2013, prices were pre-dicted to rise by no more than 2%.

With global markets slowly recovering, cement andconstruction material prices remain softer than dur-ing the pre-recession construction boom. Cementfirms are only just rebounding from a utilisation rateof less than 50%, Ventures Middle East reported in June.“With the recovery of the markets taking place, devel-opers are recognising that there is a window of oppor-tunity to maximise the benefit of the downturn inconstruction costs,” Seymour said.KEY PLAYERS: Lower costs and rising demand haveboosted the bottom line for the big players in AbuDhabi. Arabtec Holdings, which was formerly basedin Dubai but moved to Abu Dhabi in 2013, was recent-ly awarded the $653m contract for the Abu Dhabibranch of the Louvre Museum. On the back of newUAE contracts, Arabtec posted improved earnings insecond and third quarters of 2013, after a tough2012. Arabtec’s profits hit Dh92m ($25m) in the threemonths ending in June, compared with a loss of Dh12m($3.3m) during the same period in 2012.

Leveraging off of its success in the UAE, Arabtec isenhancing its local capacity and expanding regionaloperations. In September 2013 the firm launched ajoint venture with the engineering arm of South Korea’sSamsung, and in October, it took complete ownershipof the Emirates Falcon Electrochemical Company,which provides infrastructure, electrical, air condi-tioning, plumbing and sanitary works for develop-ments in the UAE, Qatar, Saudi Arabia and Jordan.

In a step toward recovery from the lows of the lastfew years, Abu Dhabi’s two biggest developers, AldarProperties and Sorouh Real Estate, completed a merg-er in June 2013 and began trading on the stockexchange as a single entity. Ongoing projects includehousing developments for UAE nationals, develop-ments in investment zones which are open to bothUAE nationals and foreign expatriates, and hotel andretail projects (see Real Estate chapter). The Al JaberGroup, a privately owned group of companies basedin the emirate, is responsible for the construction ofmany of the Gulf’s major road networks and has builtmore than 7000 km of road in Abu Dhabi alone.

Abu Dhabi’s construction sector is also attractinga growing number of leading global firms, driven bythe limited opportunities on offer elsewhere. Indianfirm Larsen & Toubro has racked up contracts to builda new hospital, the Abu Dhabi-Dubai highway andpart of the airport expansion project. The firm is set-ting up an engineering centre in Abu Dhabi, fromwhich it hopes to compete across the GCC. Similarly,Italian firm Impregilo has also set up shop locally, while

Samsung, US-based Bechtel and Germany’s Siemensare considering bids for the Abu Dhabi metro system,among other infrastructure projects. The Consolidat-ed Contractors Company has also focused on the localmarket, specifically by participating in a joint ventureto build the Midfield Terminal Building at the AbuDhabi International Airport. MASTER PLANS: In large-scale mixed-use projects,a government agency or private firm will often under-take the development of an entire district accordingto the municipality’s master plan. Mubadala Real Estate& Infrastructure, for example, is developing the des-ignated central business district located on Al MaryahIsland. In the nearly completed first phase of devel-opment, the government-owned investment firmfunded construction of the Abu Dhabi SecuritiesExchange building, four commercial towers, two lux-ury hotels, a retail district and an international mul-ti-specialty hospital, the Cleveland Clinic Abu Dhabi.

When completed, Al Maryah Island’s Cleveland Clin-ic will be the largest steel structure in the country,weighing more than 30,000 tonnes. The constructionteam behind the $1.4bn contract – Belgium’s Six Con-struct, with a 60% stake, and South Korea’s SamsungC&T, with 40% – also built Dubai’s Burj Khalifa, the worldtallest building. Aldar Properties developed the proj-ect for Mubadala, and UK-based multinational Aedasdesigned the structure.

Aldar Properties serves as master developer on anumber of significant projects across the capital. Yas

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THE REPORT Abu Dhabi 2014

The value of Abu Dhabi’s construction sector reached $23.7bn in 2012

Due to a reduction indemand, tender pricesdropped by 3% in 2011, butstayed stable in 2012. In2013 prices were forecastto increase by no morethan 2%.

SOURCE: SCAD * preliminary estimates

2009 2010 2011 2012*

Share of GDP at current prices (%) 14.8 12.9 9.9 9.6

Share of non-oil GDP at current prices (%) 26.8 25.7 23.1 22.1

Gross output (% of GDP at current prices) 27.4 24.4 19.8 19.7

Capital formation (% of GDP at current prices) 0.9 0.7 0.5 0.5

Compensation of employees (Dh bn) 16.17 23.64 25.49 27.73

Sector indicators, 2009-12


Island, the entertainment district that is home to AbuDhabi’s Formula 1 track, is still under development byAldar. Sorouh – now merged with Aldar – has actedas the master developer of Al Reem Island’s largestmixed-use commercial, retail and residential commu-nity, Shams Abu Dhabi.NEW KHALIFA CITY: Musanada, the public buildingagency, announced plans in November 2013 to launchconstruction of New Khalifa City, a capital district des-ignated to serve as Abu Dhabi’s second downtown.The project is set to include housing for 370,000 peo-ple, schools, entertainment and sports facilities, alongwith the bulk of Abu Dhabi’s ministries, embassiesand financial institutions, over an area of 49 sq km.

“The project is a major developmental initiativedesigned to enhance the status of Abu Dhabi as a glob-al sustainable capital city that meets the needs offuture generations,” Ali Al Haj Al Mehairbi, Musana-da’s executive director for buildings and project man-agement services, told local media in November 2013.

As part of the development, construction of anEmirati residential neighbourhood is planned that willstretch over 1440 ha in the south and south-east ofthe project area. The neighbourhood will be built inthree phases, with Musanada set to issue a tender forthe construction of infrastructure in late 2013. HOSPITALITY & TOURISM: Government investmentin the emirate’s hospitality and culture sectors is driv-ing new construction and the relaunch of projects thatwere put temporarily on hold during the global cred-it crunch. “New infrastructure such as hotels andresorts are required for development of the tourismindustry in the emirate of Abu Dhabi and construc-tion as one of the enabler industries will contributeto the development and support of the targeted futuregrowth sectors,” stated the “Abu Dhabi Statistical Year-book 2012” put out by SCAD.

In January 2013 Abu Dhabi National InvestmentCorporation awarded the contract to build the Fair-mont Abu Dhabi Hotel and Apartment Towers, one of

the first large-scale hotel projects to begin construc-tion in recent years. SAADIYAT ISLAND: The Tourism Development andInvestment Company (TDIC) is leading the biddingand contracting process for construction of the Saadiy-at Island Cultural District, a 2.43-sq-km area that isplanned to house three major museums – local branch-es of both the Louvre and the Guggenheim, as wellas the Zayed National Museum, the island’s centre-piece – and a performing arts centre.

In January 2013 TDIC awarded a $653m contractfor previously delayed construction of the Louvre AbuDhabi to a joint venture between Arabtec Construc-tion, Oger Abu Dhabi and Spain’s Constructora SanJosé. The local branch of the Paris institution is sched-uled for completion in 2015.

All three museums were designed by celebrity archi-tects before the onset of the global financial crisis.Norman Foster’s Zayed National Museum is now ontrack to open in 2016, while Frank Gehry’s Guggen-heim is set for 2017. TDIC invited firms to prequalifybefore the end of August 2013 to build the Guggen-heim, and in November announced the main con-struction contracts for the Zayed National Museumand Guggenheim would be awarded in the first andsecond quarters of 2014, respectively. Arabtec, amongothers, has bid for both projects. HOUSING: The construction of new residential unitswill drive sector growth in the coming years as thegovernment enhances housing options for nationalsand encourages private sector investment. In Janu-ary 2013 the Abu Dhabi Executive Council announcedplans to undertake nine projects to build 12,500 newhomes for Emiratis. The projects, implemented throughMusanada, the public building agency, will includehousing developments in Abu Dhabi, Al Ain and AlGharbia. Additionally, the Abu Dhabi Executive Coun-cil has earmarked Dh3bn ($816.6m) in loans for 1500nationals to help with the construction of new homesor the completion of existing projects.

Sheikh Hazza bin Zayed, the vice-chairman of theExecutive Council, announced plans in September2013 to establish the Abu Dhabi Housing Authority,which will be responsible for all housing projects inthe emirate. “Having done this, we can provide the pres-ent and the future generations with dignified living,”Sheikh Hazza told local media upon announcing thenew authority, which he himself will head.

In one of many recent government efforts toimprove the quality and availability of housing forEmiratis, the agency will compile a database of thehousing needs of all UAE nationals. INDUSTRY & INFRASTRUCTURE: Expanding invest-ment in industry, both in the hydrocarbons sectorand in burgeoning downstream sectors, offers oppor-tunities for local contractors. In April 2013 SouthKorea’s Hyundai Engineering and Construction (HDEC)and Petrofac International, Abu Dhabi won contractsworth a combined $2.4bn for projects aimed at boost-ing production at the Satah Al Razboot (SARB) oilfield by 100,000 barrels per day (bpd). As part of a

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Foreigners can only purchase property in designated investment areas, such as Reem Island

The public building agencyhas announced plans tolaunch construction of NewKhalifa City, a 49-sq-kmcapital district that willserve as Abu Dhabi’ssecond downtown. It is setto include housing, schools,entertainment and sportsfacilities, as well asministries, embassies andfinancial institutions.

Due to rising investment inindustry, both thehydrocarbons anddownstream sectors offervarious opportunities for contractors.



strategic initiative spearheaded by the Abu DhabiNational Oil Company (ADNOC), the Abu Dhabi MarineOperating Company plans to add a total of 300,000bpd in additional production at various offshore fields.ADNOC is currently building two artificial islands, SARB1 and SARB 2, near wellhead. As part of a $1.49bn proj-ect, HDEC will construct processing, storage and exportfacilities, while Petrofac will lay subsea pipelines andcables under its $515m contract. Three additionalcontracts will be awarded before the SARB upgradeis completed in mid-2017.

Yasser Nasr Zaghloul, the CEO of National MarineDredging Company, has seen the hydrocarbons sec-tor account for a growing share of his business. “Inthe past dredging and land reclamation was drivenby island and coastal developments to support theexpansion of the real estate sector,” he told OBG. “Nowthe industry is primarily being driven by the expan-sion of the offshore oil and gas sector.”

Infrastructure is set to be another growth driver, giv-en plans for public spending on everything from roadsand ports to power plants and hospitals. The govern-ment is funding construction of roads, rail and metroprojects, along with upgrades to sewerage, powerand water infrastructure (see analysis).RULES & REGULATIONS: With the industry expand-ing, the government has introduced increasinglysophisticated regulations to reduce environmentalimpact, protect worker safety and enhance overallquality. The government aims for Abu Dhabi City tobe one of the top-five municipalities in the world,Ziad Al Tahsh, media expert at the Department ofMunicipal Affairs (DMA), told OBG.

In pursuit of this goal, the DMA introduced newunified building codes in October of 2013 to set stan-dards on issues from construction safety and fire reg-ulation to sanitation and sustainability. The Abu DhabiBuilding Codes tailor to the GCC climate the globalstandards set by the International Codes Council, theworld’s leading building code authority. As of Octo-ber 2014, it will be mandatory for all governmentbuildings to adhere to the new standards.

Meanwhile, the municipal government requires allnew project plans to follow a set of environment,health and safety standards. The city has hosted atleast 14 training forums targeted at construction firmsand designed to highlight risks to worker safety andpromote sound precautions. In May 2013 the munic-ipality held a workshop to educate 700 industry pro-fessionals on the midday ban on work in uncoveredconstruction sites during the hot summer months.

In July 2013 local media reported the municipalityhad issued 220 citations for non-compliance in thefirst half of 2013. The municipality visited 1190 build-ing and construction sites in 2012, including 54 sweepsof worker accommodations, the report said. The localgovernment sought input from industry stakeholderswhile crafting the building code legislation and manywelcome the new regulations. “The real estate andconstruction industry here has expanded rapidly in avery short period of time. As the industry continues

to mature and regulation catches up, a larger empha-sis will be placed on raising pre-qualification stan-dards, which will help drive the sector to greater lev-els of prosperity,” Saeed Al Mehairi, the CEO of PivotEngineering and General Contraction, told OBG. ESTIDAMA: The new building codes are designed tocomplement the existing sustainability standards setby the Urban Planning Council’s Estidama Pearl Rat-ing System, which rates the local built environmentaccording to environmental, social and energy impact.Administered through the Urban Planning Council,Estidama rates buildings, with five pearls as the max-imum rating and one pearl as the minimum requiredfor a building permit. Government buildings mustearn two pearls and both the Louvre and the new inter-national airport will be ranked as three-pearl build-ings upon completion. While projects can earn pointsfor using locally sourced materials and promotingworker safety, almost half of the measurements areconcerned with usage of water and energy resources.

The enhanced regulations have already had animpact, according to the UPC, which performed auditsof construction sites and calculated a reduction inwaste of about 85% in two years. The system has alsohelped to improve the quality of the supply chain.

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The value of the construction industry in Abu Dhabi grew 5% in 2012

In October 2013 newbuilding codes settingstandards on issues fromconstruction safety and fireregulation to sanitationand sustainability wereintroduced by theDepartment of Municipal Affairs.

SOURCE: SCAD

Commodity group Sept-Oct 2013 (% change) Oct 2012-Oct 2013 (% change)

Cement 0 2.9

Aggregates & sand 0 17.4

Concrete 0 2.2

Steel -4.3 -6.3

Wood -0.3 6.9

Block 0 -8.4

Roofing materials 0 1.8

Waterproofing products 0 1.8

Natural stone 0 18

Tiles & marble 0 -1.5

Price changes for building materials, Oct. 2012-Oct. 13


“The Pearl Rating System under the Estidama ini-tiative will help improve the overall quality of build-ing in the emirate,” Pivot Engineering’s Al Mehairi said.

Of the 10.5m sq metres of building and villa devel-opment started since Estidama’s implementation in2010, the majority (5.9m sq metres) are two-pearlprojects. Approximately a tenth of development isthree-pearl rated and only four buildings have achieveda four- or five-pearl rating. BEYOND THE BUILT ENVIRONMENT: According to theUPC, the government is considering expanding Esti-dama to rate the construction and maintenance ofinfrastructure projects as well. Already, sustainabilityserves as a guiding principal for contracting beyondthe building construction.

“The government has placed a greater emphasis onenvironmental protection of marine ecosystems,”Zaghloul told OBG. “The government has done a greatjob in communicating the exact specifications requiredto meet their guidelines for environmental protection

and that makes it so much easier for us as an indus-try to comply,” Zaghloul added. NEW TECHNOLOGIES: Geographic information sys-tems (GIS), which provide more sophisticated data fordecision-making, have become a standard tool in anumber of sectors in recent years, including real estateand urban planning. GIS is a computer-based tech-nology that combines the visual clarity of maps withthe analytical capabilities of databases.

According to Khaled Al Melhi, the CEO of a map-ping and surveying company Bayanat, which wasestablished by Mubadala in 2011, “Two- and three-dimensional GIS data-modelling services will enhanceeffectiveness across a multitude of sectors by reduc-ing duplication of data collection and maintenanceefforts and optimising planning, simulation, and train-ing initiatives and activities.”

GIS can be utilised anywhere geography-based dataand information are used, and the technology will addvalue to both the public and private sectors, fromsmall businesses to large corporations. “The use of cut-ting-edge geospatial solutions is of considerable addedvalue to both the public and private sectors, as thecollection, analysis and management of spatial datawill not only strategically support continuous urbandevelopment, but it will also accelerate nationalprogress holistically across the fundamental sectorsof defence and public safety, energy, transportationand other public services,” Al Melhi said.OUTLOOK: With a number of large-scale projectsunder way and in the pipeline, Abu Dhabi’s construc-tion sector looks set for continued growth in the com-ing years. Government spending is driving much ofthe expansion, and the state is also placing a partic-ular emphasis on ensuring both the quality and thesustainability of new projects. The emirate’s currentinvestments are intended to lay the foundation for thedevelopment of an increasingly diverse economy inthe years ahead, and the municipality’s regulationsshould go a long way towards realising its ambitionof making the capital a leading international city.

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The Pearl Rating System will help improve the quality of building

The government isconsidering expanding theEstidama Pearl RatingSystem, which rates thelocal built environmentaccording to itsenvironmental, social andenergy impact, to theconstruction andmaintenance ofinfrastructure projects.

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CONSTRUCTION ANALYSIS

The municipality is increasingly interested in employing BOT contracts

With the goal of upgrading existing facilities and lay-ing the foundations for future economic growth, theAbu Dhabi government is investing billions in public infra-structure. Transportation and energy projects compriseabout a third of planned or existing construction spend-ing in the UAE, according to a recent report from Mid-dle East Economic Digest, and Abu Dhabi is leading thecharge in both sectors with large-scale projects includ-ing a nationwide railway, an upgraded international air-port and a nuclear power project. In its 2013 reporthighlighting opportunities across the GCC constructionsector, international professional services firm Deloittestated, “Government-supported infrastructure spend-ing in transport and utilities will intensify as a meansof diversifying the economy away from oil.”

Salem Al Noaimi, the CEO of Abu Dhabi-based invest-ment company Waha Capital, told OBG, “We believe theprocess of economic diversification will continue, thanksto government investments such as Abu Dhabi’s $90bn,five-year programme. This will be particularly markedin areas like energy-intensive industry and social infra-structure, where the government is looking to privateinvestment to help raise quality and competitiveness.”

Indeed, in keeping with the emirate’s national strat-egy, the public investments are targeted to enhanceindustrial infrastructure and expand freight and portcapacity. In addition, projects in the pipeline will increasepublic transportation options and expand power capac-ity to meet the needs of a growing population. By 2030,according to estimates from the Department of Trans-port (DoT), metropolitan Abu Dhabi is expected to behome to 3.1m people, up from just 0.9m in 2008. TRANSPORT: While the 2009 Surface Transport Mas-ter Plan outlined a strategy to achieve the transporta-tion goals set out in the Abu Dhabi Economic Vision2030, in May of 2013 the DoT released more detailedplans for the proposed light rail transit (LRT), bus rap-id transport (BRT) and metro systems. Worth aboutDh7bn ($1.9bn), the projects have attracted globalplayers, according to local English-language newspa-

per The National, with Germany’s Siemens, South Korea’sSamsung Engineering and the US-based Bechtelexpressing interest in the bids.

With the goal of awarding contracts in 2015, the DoTlaunched the pre-qualification process in mid-2013and will issue requests for proposals in early 2014,multinational law firm Norton Rose Fulbright reportedin a 2013 analysis. The first phase of the 18-km metroline will be divided into three contracts, according tothe DoT, while Norton Rose Fulbright anticipated theremaining projects – the LRT, which will include one15-km line and one 13-km line, and the BRT, which willcomprise a single 14-km path – will each be awardedthrough a single contract. CONNECTING THE EMIRATE: The emirate is investingin road and rail infrastructure to better connect AbuDhabi with the rest of the nation and the region. In 2013the Executive Council approved the $2bn constructionof the Mafraq-Ghweifat road connecting the capital cityto Dubai. To build the 327-km highway, the DoTannounced plans to divide the contracts among Al Gee-mi & Partners Contracting Company, Al Jaber Transportand General Contracting, Bin Hafeez General Contract-ing Establishment, Ghantoot Transport and GeneralContracting, Larsen & Toubro/Delma Engineering, andTristar for Engineering/Abu Dhabi Salini Construction.

Work is already under way on the $10.98bn railwaythat will ultimately stretch 1200 km to connect theseven emirates with the rest of the GCC. Etihad Rail,the government-backed company responsible for therail system, is developing the freight project in threestages, with the possibility of incorporating commutertransit at a later date. When completed in 2014, stageone of the project will connect Habshah and Shah tothe port of Ruwais (see Transport chapter). The ten-dering process is under way for stage two, which willconnect the railway to the Saudi border at Ghweifat,the Omani border at Al Ain, as well as Dubai. Stagethree, scheduled for completion by the end of 2018,will stretch from Dubai to the Northern Emirates.

Infrastructure investment iscrucial to meet the needsof a growing population,with metropolitan AbuDhabi expected to be hometo 3.1m people by 2030.

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Investments are aimed atenhancing Abu Dhabi’sindustrial infrastructure,expanding freight and portcapacity, increasing publictransportation options andboosting the power supply.

Investing in infrastructureRoad, rail, port, airport and utilities projects are all in the works


The project is providing significant business for inter-national firms and local suppliers alike. To manage thenetwork, Etihad Rail and DB Schenker Rail, announcedthe formation of a joint venture in June 2013, with Eti-had Rail owning a majority stake in the new entity andthe German firm responsible for operations. Etihad Railhas already received the seven locomotives purchasedfor stage one from Caterpillar-owned Electro-MotiveDiesel. Future clients of the railway include SharjahCement, Centre Waste Management and Emirates Steel.AIRPORT: In one of the largest and highest-value proj-ects under way in the emirate and the greater region,Abu Dhabi Airports (ADAC) is expanding the capacityof Abu Dhabi International Airport from 12.5m to 47mpassengers per annum. The upgrade includes a thirdterminal, additional runways and the Midfield Termi-nal Building (MTB). The joint venture partnershipbetween TAV Construction, Consolidated ContractorsInternational and Arabtec Construction signed a con-tract with ADAC to carry out the project, which willinclude structural, civil, electro-mechanical engineer-ing and site works, and finishes for Dh10.8bn ($2.9bn)in total, with Arabtec’s share being Dh3.6bn ($979.9m).The terminal is expected to be commissioned in late2017 (see Transport chapter). PORT: When completed in 2030, Abu Dhabi’s new Khal-ifa Port (KP) and the neighbouring Khalifa Industrial ZoneAbu Dhabi (Kizad) will occupy a space two-thirds thesize of Singapore, The New York Times reported. The near-ly complete phase one of construction cost $7.2bn andinvolved building a 5-km artificial island, the infrastruc-ture for an annual shipping capacity of 2.5m twenty-foot equivalent units (TEUs), and the largest single-sitealuminium smelter in the world. The government plansto expand Kizad to 417 sq km in five phases, and pro-vided activity at the port continues to grow, KP willreach a total capacity of 15m TEUs and 35m tonnes ofgeneral cargo by 2030. The project, managed by mas-ter developer Abu Dhabi Ports Company (ADPC), includessignificant investment in technology, and the semi-

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Capacity at the Abu Dhabi International Airport will be expanded from 12.5m to 47m passengers per year

The government isinvesting in utilitiesconstruction projects tomeet increasing demandfor power, water andsanitation. Among otherprojects, the emirate isbuilding a $30bn nuclearplant and 40-kmwastewater tunnel.


automated container terminal is set to be the mostadvanced in the region. ADPC also is upgrading small-er ports, investing Dh17m ($4.6m) in the developmentof Marfa Port and redeveloping parts of Zayed Port toaccommodate cruise liners.UTILITIES: Along with transportation infrastructure,the government is expanding public utilities to meetgrowing demand for power, water and sanitation. In its2013 report on the GCC construction industry, Deloitteemphasised growth opportunities in the UAE’s utilitiessector, which must expand significantly to keep pacewith residential and commercial construction. The AbuDhabi Water and Electricity Authority (ADWEA) is anattractive partner for private investors, Deloitte noted,as the public utility is willing to provide government guar-antees and take majority stakes in projects. ADWEAhas attracted approximately $18bn in investment topower and water projects, the authority stated.

Scheduled for completion in 2017, construction onAbu Dhabi’s $30bn nuclear plant in Barakah, a town inAl Gharbia, is spurring development in the area. Over$1bn in contracts for related construction have beenawarded to more than 180 UAE companies, the CEOof the Emirates Nuclear Energy Corporation, MohamedAl Hammadi, told local media in June 2013.

Jones Lang LaSalle (JLL) has also noted an increasein construction opportunities due to the approval of amajor sewerage upgrade by the Executive Council. Oneof the most significant infrastructure projects underway in the emirate is the 40-km wastewater tunnel,according to JLL. The Dh5.7bn ($1.6bn) project, set forcompletion in 2015, will be the world’s second-longestgravity-driven tunnel. Four main contractors are work-ing on the project: Korea’s Samsung, Italy’s Impregilo,Austria’s Zublin and Brazil’s Odebrecht.PUBLIC-PRIVATE PARTNERSHIP: Abu Dhabi’s infra-structure projects are successfully executed through arange of contracting and funding mechanisms. Thelion’s share of Abu Dhabi’s metropolitan transit proj-ects, for example, are fully funded by the governmentand contracted to private firms. Of the three contractsawarded to build Abu Dhabi’s metro system, two aredesign-and-build contracts, but the contract for thedepot, track and rolling stock is a design-build-oper-ate-and-maintain contract.

The municipality is increasingly interested in employ-ing build-operate-transfer (BOT) contracts under whichthe private sector, rather than the government, financesthe initial investment. “New opportunities under theBOT model will be made available to the private sector,affording them a larger role to play in the delivery ofmunicipal services and provision of investing in com-munity facilities,” Ahmed Shareef, undersecretary ofthe Department of Municipal Affairs, told OBG.

Local media reported in March 2013 that contractsfor service stations along the emirate’s highway wouldbe put up for auction for private investment. Indeed,government-sponsored projects have attracted signif-icant local financing. With a long-term plan for infra-structure upgrades, Abu Dhabi is on track to offeropportunities to both contractors and financers.


Prices for many building materials are once again on the rise

As construction projects ramped up in 2013, the Sta-tistics Centre - Abu Dhabi (SCAD) announced plans toexpand the number of indicators included in its month-ly report on construction costs. By the end of the year,SCAD announced that it would begin monitoring theprice of land and transport in the building materialprice reports, which currently measure 21 construc-tion costs including those for cement, glass, powercables and labour. “It will help construction peopleunderstand how much it costs to build different proj-ects in Abu Dhabi for a villa, tower, roads or bridges,”Hanan Al Marzouqi, the manager of prices and incomestatistics at SCAD, told local media in June 2013.BUILDING COSTS: During a lull in major building proj-ects after the 2008 recession, building costs fell in AbuDhabi, resulting in a decline in the value of tenderprices. According to international consultancy EC Har-ris, UAE tender prices fell 3% in 2011, in line with declin-ing costs, and remained stable in 2012. As confidencereturns to the construction sector, and neighbouringstates launch government-funded infrastructure proj-ects, construction costs are expected to increase. Whilethe UAE plans to spend $90bn on infrastructure in thecoming years, Qatar and Saudi Arabia will invest about$100bn and $500bn, respectively, in capital projects,EC Harris said in its winter 2012/13 UAE report. “TheUAE is having to compete with these two dominatingmarkets,” the report stated.

SCAD’s expanded price index is a response to therequests of developers seeking to plan future construc-tion. The emirate’s statistical agency has also begun torelease monthly inflation data by region, comparingconsumer prices increases across Abu Dhabi Munici-pality, Al Ain and Al Gharbia.

SCAD also releases an annual report tracking thechanges in building material prices and monthly reportsmonitoring fluctuations by month, quarter and year. “Thedissemination of this important report, which presentsa wide range of price data, is intended to serve the needsof data users in the public and private sectors for the

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Construction costs arelikely to increase asconfidence returns to thesector and neighbours suchas Saudi Arabia and Qatarmove ahead with largegovernment-fundedinfrastructure projects.

Report updateExpanded price index provides additional data to the market

purposes of research, planning and decision making inways that support the construction sector as well asrelated and dependent sectors,” the introduction tothe September 2013 report stated. COMMODITY DATA: In the third quarter of 2013, fiveout of 21 commodity groups recorded stable or high-er average prices than in the previous quarter. Theprice of cement rose by 0.5% in the third quarter of 2013,compared with the second quarter, and by 1.2% whencompared with third quarter of 2012. This followed anaverage increase of 5.6% monthly for cement groupsin 2012. The SCAD annual reports measure prices ofsix cement types and producers: Sulphate Resistance/AlEtihad, Sulphate Resistance/Emirates, PortlandCement/Al Etihad, White Cement/Ras Al Khaimah,Lime/Oman and Gypsum/Oman.

Average prices for the category “aggregates andsand”, which SCAD also breaks down by type and pro-ducer, rose 8.3% in the third quarter of 2013 comparedwith the previous quarter, and 11.1% compared withthe same quarter in 2012, following an average month-ly price increase of 6.4% in 2012. The categories ofnatural stone, glass, and roofing tiles also recordedyear-on-year (y-o-y) increases in the third quarter.

Employment costs in Abu Dhabi’s construction sec-tor were up 8.1% in the third quarter, compared to thesame period in 2012. Broken down by occupation,prices increased most for surveyors, carpenters and steelfixers, where wages rose 22.7%, 10%, and 10%, respec-tively, between September 2012 and September 2013.

Many of the more easily tradable building materialssaw prices fall in the third quarter of 2013 comparedwith the previous quarter and the previous year. In linewith global markets, Abu Dhabi’s steel prices recordeda 3.8% y-o-y drop in September 2013. In 2012, pricesfor the “steel group”, which includes wires, bindingwires and bundles, also fell 8.3% y-o-y.

With the region’s construction sector on the rebound,the expanded data from SCAD is set to provide addi-tional transparency and efficiency to the market.

REAL ESTATE OVERVIEW

Sales and rentals of prime residential properties have picked up

After nearly five years of decline, rents in Abu Dhabi’sreal estate market are stabilising, with prices for grade-A office space holding steady and prime residentialrents rising for the first time since 2008-09. Driven bygovernment investment in infrastructure and econom-ic and social development projects, along with increasedregional investment in the UAE, demand looks positivefor the near future. The signs of rebound are welcomenews for property owners, who have watched averagerents fall more than 50% since 2008-09. “The uptakehas not been as quick as people expected it would be,”Mark Morris Jones, director at CBRE’s UAE office, toldOBG. “Many developers have been sitting on proper-ties, putting whole projects on ice for two to threeyears.” Indeed, in the last year developers have restart-ed a number of paused projects and landlords havebegun turning over units held off the market.

The uptick in transactions and rentals, however,remains relegated to the much smaller high-qualitysegments. Landlords of mid- and low-tier commercial,residential and retail space continue to face fallingprices and high vacancy rates. “For most asset classes,in spite of market-wide over-supply, there is also ashortage of high-quality stock in terms of design andconstruction quality, property management and suit-ability to end-user requirements,” Jones Lang LaSalle(JLL) stated in its second-quarter 2013 report on thelocal market. “This continues to drive product differ-entiation, with two-tier performance between high-grade and low-grade property.” RESIDENTIAL: Sales and rentals of prime residentialproperties have picked up in the last couple of quar-ters after several years of price declines. Rents forprime two-bedrooms stayed stable in the second quar-ter of 2013, after recording an 8% increase in the firstquarter of the year in the first uptick since 2008, accord-ing to JLL. Local real estate services firm Asteco report-ed prime rent increases of up to 10% in the first half ofthe year. On the sales side, JLL reported a 5% hike inthe asking price for residential properties in invest-

ment zone areas, while Asteco reported asking pricesrose rapidly during the first half of the year. “If you lookat overall rates in Abu Dhabi, you can see that they arejust turning,” Christopher Taylor, the CEO of local lenderAbu Dhabi Finance, told OBG.

Rising demand for quality residential propertiescomes on the back of a growing economy. Govern-ment spending initiatives designed to diversify the localeconomy have increased job growth and job security.“Now there is a real demand,” said Nasir Al Mulla Al Jes-mi, director of PR and communications at the Depart-ment of Municipal Affairs (DMA). “It’s not like before.People are paying in cash, buyers are the end-users andit’s a much more mature market.”

Further demand has been driven by a regulation thatcame into effect in 2012, requiring all governmentemployees to live in Abu Dhabi in order to qualify forthe state-funded housing allowance (see analysis).Additionally, “The UAE property market is benefittingfrom the country’s status as a safe haven amid turbu-lence in the MENA region,” Al Jesmi told OBG.

Meanwhile, the 5% rent cap for properties in AbuDhabi was removed in November 2013 in a move whichwas welcomed by real estate managers. As the emirate’sproperty market is well supplied and hundreds of newunits are coming on to the market in the near future,there is little likelihood of widespread rent rises. PRIME REAL ESTATE: The upswing in both sale andrental prices has occurred primarily in master-planned

High-quality markets haveexperienced a rise innumber of transactions andrentals while mid- and low-tier commercial, residentialand retail space continue tosee falling prices and highvacancy rates.

For the first time since the2008-09 global financialcrisis, prices for grade-Aoffice space in Abu Dhabiare holding steady, whileprime residential rentshave risen.

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A positive trendDemand for prime real estate is up across all segments


SOURCE: Asteco

Q1 2013 Q2 2013 % change y-o-y

Q2 2013

Marina Square 10,766 11,305 11%

Raha Beach, Al Bandar 13,458 13,727 16%

Raha Beach, Al Zeina 10,228 11,907 23%

Raha Beach, Al Muneera 10,766 11,466 17%

Reef Downtown 5922 7106 20%

Avg. flat sales prices, Q1-2 2013 (Dh per sq metre)


areas where properties are high quality and offer onsiteamenities. Thanks to the delivery of newer, higher-endstock, the residential landscape has shifted to the pointthat, in the middle of 2013, Asteco reclassified prop-erties once deemed high-quality as mid-tier. “Recent-ly completed properties often provide a significantimprovement over older stock and hence rents cannotbe compared,” Asteco stated in its first-half report.

The firm’s methodology designates as prime prop-erties only the St. Regis Residence on Saadiyat Island,Nation Towers and Capital Plaza on the Corniche, Eti-had Towers in Bateen and Eastern Mangroves on theEast Corniche. High-quality tier-two properties includedevelopments at Al Raha Beach and Reem Island.

Rents for high-quality apartments have increasedover the past nine months, in spite of significant vacan-cy rates within older buildings. “Some newer, higher-quality developments have achieved take-up rates of80% within the first three months from project launch,reflecting the strength of demand for the right quali-ty residential product,” David Dudley, regional directorand head of the Abu Dhabi office at JLL, told OBG.“There remains a limited stock of units available for salewithin the investment areas and many residents there-fore continue to rent units, especially in new, well-designed projects that offer good lifestyle amenities.”

High-end supply is expected to increase in the com-ing years, as total residential stock rises from 210,000units in mid-2013 to 254,000 units by the end of 2015,

with the lion’s share coming in master-planned areas,according to JLL data. A total of 10,000 units will beturned over in the second half of 2013, including lux-ury units in the Saadiyat Beach Residences and East-ern Mangroves Promenade. JLL and Asteco forecastthe increased supply will reduce rate increases, but nei-ther predicts a return to falling prices.

Meanwhile, the availability of higher-end housingstock has allowed Abu Dhabi residents to upgrade andhas further depressed prices for mid-tier and low-tierproperties. Local realtors emphasise that the proper-ty market recovery so far remains restricted to theprime segment. “The overall market remains a tenant’smarket,” said CBRE’s Morris Jones. Indeed, for the manyof the emirate’s developers, the days of rental schemesto entice tenants are not yet in the past.DEMAND FOR FINANCING: Increased demand for res-idential purchases from nationals and expatriates hasrenewed local demand for financing. In September2013 local media reported a 40% year-on-year increasein the number of mortgage valuations internationalfirm Cluttons had been asked to perform in the pre-ceding 12 months. “There was a resurgence in demandfor mortgages in 2012,” Taylor told OBG. “One of thefactors, aside from improved confidence in the hous-ing market, was because banks had built up a lot of liq-uidity and in places like Abu Dhabi this often translatesinto good offers to consumers as lending becomesincreasingly affordable.” As the mortgage market gets

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Despite considerablevacancy rates within olderbuildings, rents for high-quality apartmentshave jumped over the pastnine months.

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competitive, according to Taylor, margins are tighten-ing and he predicted rates would rise in the near future.

With demand for financing increasing across theemirates, the UAE central bank is taking steps to reducethe possibility of another speculative bubble. The bank-ing authority introduced new mortgage restrictions inthe end of 2012, and after consultation with locallenders, released revised regulations in 2013 to limitloans for properties up to Dh5m ($1.4m) to a maximumof 80% loan-to-value (LTV) ratio for UAE nationals and75% for expatriates. The allowed LTV ratio is lower forhigher-value properties and second homes. The regu-lations will have an impact as any regulation would,Taylor said, but the new thresholds are more in line withindustry averages. Abu Dhabi Finance, for example, hasan average LTV ratio of about 70%, with mortgagesequally divided between expatriates and nationals.

Richard Paul, the director of residential valuations forCluttons Dubai, told local media he was confident themarket would remain strong. “We are carrying out a

large amount of mortgage valuations at the momentfor different banks all over Dubai and Abu Dhabi, andwe are very aware that our counterparts are doing sim-ilar business. This is a trend we expect to continue.”

Abu Dhabi’s market for residential sales is segment-ed between nationals and expatriates, who are limit-ed in where they can buy. Foreign nationals can onlypurchase property in designated investment areas,which include locations such as Saadiyat Island, ReemIsland and Al Raha Beach. Meanwhile, in January 2013the Abu Dhabi Executive Council announced plans toprovide Dh3bn ($816.6m) in home loans to 1500 Emi-rati citizens and to build an additional 12,500 Emiratihomes in nine new developments. OFFICE SPACE: While office rents remain far below their2008 peak, prices for grade-A commercial space stead-ied in the first half of 2013, even as new supply wasdelivered to the market. According to JLL, average rentsfor grade-A office space stabilised at Dh1540 ($419)per sq metre in the third quarter of 2012, and stayedflat through the second quarter of 2013, marking thelongest period without a price drop since 2008. Aste-co also reported flat commercial rents during that peri-od, and stated, “Grade-A developments continue tohold headline rental levels, although rent-free periodshave increased to attract or retain tenants.”

Prices for grade-B office space have continued to slip,falling from an average of Dh1250 ($340) per sq metrein the first quarter of 2013 to Dh1200 ($327) in thesecond quarter, according to JLL. Grade-A office spaceis limited in Abu Dhabi, allowing prime rents to holdsteady even as occupancy rates remain high across thesector. Of the 2.95m sq metres in existing office space,the majority is grade B and grade C, JLL said.

SinoGulf, asset manager for a GCC real-estate fund,first noted the opportunities in this underserved sec-tor in 2006, and then began developing InternationalTower in the Capital Centre, a master-planned districtdesigned to serve as a second downtown. The build-ing offers 24 floors and a total of 41,000 sq metres ofadaptable, international-standard grade-A office space.

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Prices for grade-A office space remained steady in first-half 2013

In 2013 the central banktook steps to restrictmortgage lending bylimiting loans forproperties up to $1.4m to amaximum of 80% loan-to-value ratio for UAEnationals and 75% forexpatriates. Limits arelower for second homesand higher-valueproperties.

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Another new addition to the landscape, the NationTowers turned over units in the second quarter of 2013.One of the two towers is home to the St. Regis Hoteland high-end apartments, while the second buildingoffers grade-A office space. By September 2013, officeoccupancy rates stood at 95%, local media reported.

With 960,000 sq metres in additional stock set forrelease onto the market by the end of 2015, the shareof grade-A office space is increasing, JLL reported.

Any downward pressure on prices caused by theinflux of high-end supply is likely to be met with increaseddemand from businesses upgrading to higher-qualitylocations. Some companies have already opted to dothis. For example, Abu Dhabi Tourism & Culture Author-ity, Ernst & Young and Wintershall have relocated to theNation Towers, while AECOM and Aafaq have moved tothe International Tower.

Further, new clients, attracted by the government’sefforts to diversify the economy by investing in large-scale infrastructure projects and industry, are estab-lishing a presence in Abu Dhabi’s top-end commercialbuildings as well. “Business ebbs and flows dependingon the government’s budget and investment decisions,”David Cockerton, fund manager at SinoGulf, told OBG.“All the government-driven projects are massively impor-tant, but the most important thing that Abu Dhabi isdoing is investing in itself.”

Indeed, the International Tower tenants include anumber of aerospace and defence firms, including BAESystems and major engineering companies such asAECOM which were attracted to Abu Dhabi by the gov-ernment’s increased investments in those fields. How-ever, the majority of commercial clients (64%) are localentities, largely government agencies or government-backed firms, according to JLL.

It can be a challenge for private firms, which look tolease an average of 300-400 sq metres, to find appro-priate space with open floor plans in the emirate’sgrand buildings. Newer developments, including Inter-national Tower, have offered more flexible floor plansto serve this segment. While growth has not yet returnedto the commercial sector, many analysts see the pricestability as a sign of health in the market. “All the newgrowth is based on the sound underlying real econo-my here in Abu Dhabi,” Cockerton told OBG.INDUSTRIAL: Efforts to grow local industry are lead-ing to increased demand for high-quality industrial realestate, and some locations have seen leasing rates rise.Rents for factory and warehouse space in the Indus-trial City of Abu Dhabi (ICAD) and the Al Markaz areawere up 10% in the first nine months of 2013 comparedwith a 2012, hitting Dh550 ($150) per sq metre, accord-ing to data from real estate services firm Knight Frank.

Managed by Abu Dhabi Business Hub (ADBH), ICAD’sfacilities offer grade-A warehousing and office spaceand services to clients including Etihad Airlines,twofour54, Petrofac and Mubadala. High-quality facil-ities like those available at ICAD remain in demand.

“The current capacity for warehousing adequatelysupplies the needs of the market. However, there is asignificant lack of high-quality facilities that have the

capability to control temperature and humidity levels,as well as utilise advanced IT solutions to manage inven-tory,” El Fatih Said, the CEO of ADBH, told OBG.

Rents in the older Mussafah industrial area were upby around 5% during the nine months from January toSeptember 2013 compared with the previous year.Rents were stable at the Khalifa Industrial Zone AbuDhabi (Kizad), which opened at the new Khalifa Port inSeptember 2012, because the developer purposelyheld rates flat, the Knight Frank report stated. As thegovernment continues to invest in local industry andfund large-scale projects, the real estate consultancyforecast that industrial rents would rise by an addition-al 10% in the coming year.

“Kizad’s contribution to the economy is expected tobe calculable in terms of percentage of GDP,” MorrisJones said. Indeed, ADBH’s Said told OBG that increasedactivity at Kizad would boost the whole sector. “Exist-ing industrial zones such as ICAD provide investors witha range of dedicated facilities to support both lightand heavy manufacturing, engineering and processingindustries. Therefore, as overall connectivity improves,

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Rents for high-quality apartments have been increasing

Businesses are increasinglylooking to upgrade tohigher-quality locations,and 960,000 sq metres ofadditional grade-A officespace is set to be releasedonto the market by the endof 2015.

Annual grade-A office rents, 2010-13 (Dh 000)

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500

1000

1500

2000

2500

Q22013

Q12013

Q42012

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Q42011

Q32011

Q22011

Q1 2011

Q4 2010

Q32010

Q22010


ICAD is well placed to complement the growth of heavyindustries at Kizad” (see Industry chapter). RETAIL STOCK: While a large supply of high-end retailspace is now in the pipeline, there was little additionto available space in first-half 2013 and rents at region-al and super-regional malls posted a rise of 5% in thesecond quarter, the first gains since 2008, accordingto JLL. Abu Dhabi’s retail stock stood at around 1.78msq metres as of the middle of 2013, but this was expect-ed to rise by at least 349,000 sq metres by the end ofthe year and reach a total of 2.6m sq metres by the endof 2015 (see Retail chapter).

“There remains an undersupply of high-quality retailspace within Abu Dhabi, relative to the spending pow-er of the population – resulting in a significant leak-age of retail spending to Dubai. This will be addressedover the next few years with the completion of newhigh-quality malls in Abu Dhabi, with new projects suchas Yas Mall, Saadiyat District and those on Al MaryahIsland providing a new quality of retail offering for Abu

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The flight toward quality is likely to continue in the coming quarters

The emirate’s retail spacereached around 1.78m sqmetres in mid-2013, butthis is estimated to rise by aminimum of 349,000 sqmetres by the end of 2013.

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Dhabi residents,” said David Dudley, regional directorand head of JLL’s Abu Dhabi office.URBAN PLANNING: The emirate’s municipalities havelaunched efforts to improve city living more broadly. Ina key initiative designed to make it easier to get aroundthe capital city, the Abu Dhabi Executive Councillaunched a plan to standardise the address system.Current street naming and numbering make navigat-ing the municipality, and mail delivery, a challenge. Theimplementation of the new address system will be com-pleted by 2015 and will involve renaming 6000-7000streets in the greater Abu Dhabi City area, starting withthe main thoroughfares. “Building an integrated spa-tial data infrastructure for the emirate's developmentprojects such as infrastructure projects, no objectioncertificates and the new ‘Street Addressing, Geo-Namesand Signage System Project’ will enable the municipalsystem to better facilitate traffic flow and way finding,”Ahmed Shareef, undersecretary of the DMA, told OBG.

In addition to the street name upgrade, the DMA hasimplemented 11 new regulations regarding city nui-sances like noise, graffiti and litter. New rules comealongside large government investments in public trans-port, utilities and sanitation infrastructure. These sortsof investments will be particularly important given theforecast growth of the population: by 2030, accordingto the Department of Transport, metropolitan AbuDhabi is expected to be home to 3.1m people, up from0.9m in 2008. At the same time, the emirate is aimingto enhance municipal services to transform Abu Dhabiinto one of the top-five cities in the world, Al Jesmi said.OUTLOOK: The flight toward quality is expected tocontinue across property segments in the coming quar-ters. Rental and sale prices are beginning to reboundfrom post-recession lows, and new commercial, resi-dential, retail and industrial stock will increasingly adhereto international standards and offer high-end ameni-ties. Meanwhile, the government is set to continueinvesting in infrastructure and maintain its focus on long-term urban planning with an eye to making Abu Dhabione of the world’s leading cities and destinations.

REAL ESTATE ANALYSIS

The differential between rents in Abu Dhabi and Dubai is narrowing

Demand for prime residential properties rose in the firsthalf of 2013, as government employees prepared tocomply with a new rule requiring that they live withinthe emirate to qualify for the government housingallowance. Announced in 2012 and effective as of Sep-tember 2013, the rule applies to Abu Dhabi’s 23,000government employees, of which an estimated 10,000were previously commuting from Dubai. Jones LangLaSalle (JLL) attributed the rebound of prime rentalprices, at least in part, to the new residency rule. Aver-age two-bedroom rents rose from Dh120,000 ($32,664)per year to Dh130,000 ($35,386) per year in the firsthalf of 2013, according to JLL data, with demand focusedon master-planned developments such as Al RahaBeach, Reem Island and Saadiyat Island.PRICE HIKES: For prime real estate at Saadiyat Beach,rents increased an average of 10% between the sec-ond quarter of 2012 and the second quarter of 2013,with three-bedroom flats leasing for Dh190,000-285,000 ($51,718-77,577) annually, according to Aste-co. Average rents for high-end flats at Al Raha Beachand the two Reem Island developments, Shams AbuDhabi and Marina Square, rose 20%, 10% and 17%,respectively, over the same period. Rents for villas atAl Raha Beach and Al Reef were up 14% and 8%. His-torically, Dubai has been as an attractive destinationfor families because of local amenities and more afford-able properties. However, “The gap between rents inDubai and Abu Dhabi is closing,” Christopher Taylor,CEO of local mortgage lender Abu Dhabi Finance, toldOBG. Indeed, rents in Abu Dhabi are just turning, whileDubai saw prices rise an average of 15% for flats and14% for single-family homes over the past year.

The implementation of the new residency rule alsocoincides with growth in Abu Dhabi’s high-quality res-idential stock. Where the emirate previously had a lim-ited supply of high-end facilities, recent additions andprojects in the pipeline are augmenting the availabili-ty and affordability of luxury facilities with amenities.“The quality of residential units in Abu Dhabi is gener-

ally improving, with newer product being better alignedto end-user requirements in terms of design, manage-ment and the provision of amenities. Rental prices havehistorically been somewhat higher in Abu Dhabi thanDubai, but with prices in Dubai increasing more quick-ly than in the capital, this differential is narrowing”David Dudley, regional director and head of the AbuDhabi office at JLL, told OBG. CHALLENGES: Still, not all government employees arerelocating to emirate. Amid protests from families loathto break ties to their communities, the Abu Dhabi gov-ernment said in August 2013 that exemptions wouldbe considered. A month before the law took effect,authorities announced “special cases that require excep-tion will be considered and assessed, and appropriatedecisions will be made to each case”. Employees reluc-tant to make the move cite education as a key reason.Not only are Dubai-based families hesitant to pull chil-dren out of their schools, but more generally Abu Dhabi’sschool capacity remains underdeveloped in some areas.The units on Saadiyat Island, for example, offer top-qual-ity facilities but no local schooling options.

The Abu Dhabi government is making significantinvestments in education to catch up with demand,and the Abu Dhabi Education Council estimates that100 new schools will be needed in the next seven yearsto serve an additional 146,000 students.

Top-end private schools are opening across the emi-rate to meet this growing demand. Large private oper-ators, including Aldar Academies, a subsidiary of the localdeveloper Aldar Properties, and GEMS, the largest pri-vate school operator in the world, are expanding capac-ity. Aldar Academies now operates a total of six primaryand secondary schools in Abu Dhabi and Al Ain, and itsparent company recently inaugurated the capital’s firstRepton School, which it developed on Shams Abu Dhabi.In 2014 Cranleigh School will open a campus on Saadiy-at Island with the capacity to serve around 1600 stu-dents. “When Cranleigh School comes, you will haveeverything you need at Saadiyat Island,” Taylor said.

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Prime rental prices haveincreased partly due thenew residency rule whichrequires Abu Dhabigovernment employees tolive within the emirate toqualify for the governmenthousing allowance.

Residential reboundRental prices are on the rise

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