Q2 2018 Abu Dhabi Market Report

Q2 2018

Abu Dhabi Market Report

FOREWORD Cavendish Maxwell is a highly respected, independent firm of chartered surveyors and property consultants, focusing on property services throughout the Middle East and Africa. Established in 2008, Cavendish Maxwell is now one of the region’s most influential property consultancies. We provide comprehensive and detailed reports prepared to internationally accepted standards that meet a diverse range of client requirements. As a fully qualified member firm of the Royal Institution of Chartered Surveyors (RICS), with extensive knowledge of the region, we have the necessary experience, expertise and insight to deliver property advice of the highest standard.

Our experience covers property, land and business asset valuations; investment; disposals and acquisitions; rent reviews; lease renewals; development appraisals; advisory services; market research; feasibility studies; education advisory and valuation; project management; building consultancy and data analytics.

Our Q2 2018 report provides a summary of the Abu Dhabi residential market as well as a sector focus on the hospitality market. Price movement, rent and yield statistics and upcoming supply of residential properties are provided through Property Monitor, a real estate intelligence platform, powered by Cavendish Maxwell.

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Q2 2018

Abu Dhabi Market Report

CONTENTS 4

Price Performance

6

Rent Performance

8

Supply Overview

10 Sector Focus – Hospitality

12 Methodology

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Q2 2018

Abu Dhabi Market Report

PRICE

PERFORMANCE

Residential property prices in investment zones declined marginally during Q2 2018.

According to the Property Monitor Index, villa prices in Al Raha Gardens, Al Reef and Saadiyat Beach have declined by more than 2.5% over the last twelve months, while apartment prices remained largely stable with 1.6% decline on average over the same period. Off-plan transactions continue to dominate market activity, which remains subdued overall. Buyers have shown a preference for the mid-level price segment and developers are responding with launches at starting prices of AED 500,000 and below. In the secondary market, majority of the sellers were ready to negotiate prices down in Q2 2018. Increased participation from a wider segment of buyers will be linked to job creation and enhanced business sentiment. The AED 50 billion stimulus announced for Abu Dhabi in early June is a step in this direction, though the impact on the real estate market is yet to be seen.

Apartment Price Performance

-0.7

-0.8 -1.4

Al Ghadeer

Average price AED per sq ft

% change

-0.3

-2.1

Al Reem Island

0

-1.8

-0.5%

Al Raha Beach

-1.0%

-1.8

-1.5%

-2.0%

-2.5%

-3.0%

-3.5%

-4.0%

-4.5%

-5.0%

-5.5% Saadiyat Beach Residences

-0.5

-1.0 -0.7

Al Reef Downtown

0

QoQ% change Q1 2018 - Q2 2018

12 month % change Q2 2017 - Q2 2018

200

400

600

800

1,000 1,200 1,400 1,600 1,800

Source: Property Monitor

Q2 2018 (AED per sq ft)

Villa/Townhouse Price Performance

Average price AED per sq ft

% change

Saadiyat Beach Villas

0

-2.8

-0.5%

-2.7

-1.0%

-1.5%

-2.0%

Al Reef Villas

-2.5%

-3.0% Al Raha Gardens

-0.9

-1.6

-2.5

-0.8 0

QoQ% change Q1 2018 - Q2 2018

4

12 month % change Q2 2017 - Q2 2018

200

400

Q2 2018 (AED per sq ft)

600

800

1,000 1,200 1,400 1,600 1,800

Source: Property Monitor

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Q2 2018

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Abu Dhabi Market Report

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Q2 2018

Abu Dhabi Market Report

RENT

PERFORMANCE

Apartment and villa/townhouse rents across investment zones have continued to decline in Q2 2018, averaging 5.0% over the last twelve months.

Since the beginning of the year, tenants have had increasing flexibility to either negotiate rents down during renewal or migrate between communities as lower rents and increasing vacancy levels have made historically expensive locations accessible to a wider segment. In May, the municipality fees was increased from 3% to 5% for all premises, except villas for which it has been set at 7.5%. This monthly charge paid as a percentage of the annual rental contract by tenants is expected to put further pressure on landlords trying to rent larger units, which have been impacted from readjusted housing allowances and job losses among senior executives. Some landlords may reduce the overall rent or absorb this additional charge to attract tenants in an already constrained rental market.

Apartment Rent Performance AED per annum -0.0

-1.0

-2.0

-3.0

-4.0

-5.0

-6.0

-7.0 Al Ghadeer

-5.8

Al Raha Beach

-5.9

Al Reef Downtown

-4.8

Al Reem Island

-5.8

Saadiyat Beach Residences

-4.6

200,000

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

AED per annum Studio Rent

1 BR Rent

2 BR Rent

Source: Property Monitor

12 month % change Q2 2017 - Q2 2018

Villa/Townhouse Rent Performance AED per annum

-0.0

-1.0

-2.0

-3.0

-4.0

-5.0

Al Reef

-6.0

-7.0 Al Raha Gardens

-5.2

-6.3

Saadiyat Beach Villas

-4.1

500,000

450,000

400,000

350,000

300,000

250,000

200,000

12 month % change Q2 2017 - Q2 2018

150,000

5 BR Rent

100,000

6

4 BR Rent

50,000

0

3 BR Rent

Source: Property Monitor

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Q2 2018

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Abu Dhabi Market Report

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Q2 2018

Abu Dhabi Market Report

SUPPLY

OVERVIEW An estimated 2,300 residential units have been handed over across investment zones in Abu Dhabi during the second quarter.

In Q2 2018 majority of the residential stock was handed over in Abu Dhabi Main Island and City of Lights development on Al Reem Island.

As of June 2018, approximately 7,000 units are scheduled for handover for the second half of the year, though actual completions may vary. The key locations for upcoming supply in H2 2018 are Saadiyat, Yas Island and Al Reem Island, which have a total of over 3,700 units scheduled for completion this year.

65%

APARTMENTS

35%

Saadiyat Island

Al Reem Island

VILLAS/TOWNHOUSES

PROPERTY MONITOR

SUPPLY TRACKER Supply scheduled to be completed by end of 2018 0 - 200

200 - 400

400 - 600

1,000 - 1,500

1,500 - 2,000

2,000+

600 - 1,000

Source: Property Monitor

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Q2 2018

Abu Dhabi Market Report

Al Raha Beach Yas Island

Masdar City

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Q2 2018

Abu Dhabi Market Report

SECTOR FOCUS

HOSPITALITY Occupancy Rates

Average Daily Rate (ADR)

Abu Dhabi City

74.9%

Abu Dhabi City

AED 328

4.7%

Abu Dhabi Resorts

71.9%

YTD Occupancy Changes Abu Dhabi City

7.2%

Abu Dhabi Resorts

AED 639

1.5%

4.8%

Abu Dhabi Resorts

3.2%

0.0%

2017

YTD ADR Changes Abu Dhabi City

Abu Dhabi Resorts

2018 YTD

12.8% 3.5% Source: STR

Overall occupancy rates remained relatively stable in Abu Dhabi in 2017 showing good demand levels according to Department of Culture and Tourism - Abu Dhabi (DCT Abu Dhabi). This is not however reflected within the achieved ADRs, which continued to slide into 2018.

SEGMENT FOCUS

LUXURY OPERATIONAL PERFORMANCE

2016 vs 2017

4

With fixed and variable costs bases, the demand levels play a significant role in the performance of hospitality assets.

The statistics are representative of a luxury positioned competitive set located in Abu Dhabi. All properties contained within the set are considered to be city hotels.

The value of an asset is intrinsically linked to the profitability of the asset, thus particular attention needs to be paid to the operational performance of the market.

Departmental profits, which include all revenue streams linked to rooms, food and beverage, spas and all other operating departments, declined by 10.4% per occupied room (POR).

2 1 0 -1.0 -2.0

3.6%

Undistributed Expenses (PAR)

-3.0 -4.0 -5.0

Percentage Change (%)

Undistributed Operating Expenses includes all expenses relating to property operation and maintenance, system costs, utilities, administrative and general, and sales and marketing costs. Undistributed Operating Expenses per available room (PAR) in the Luxury properties set increased by 3.6%.

3

-6.0 -7.0 -8.0 -9.0 -10.0 -11.0 -12.0 -13.0

-10.4% Departmental Profits (POR)

-14.0 -15.0 -16.0

A combination of increased costs (primarily resulting from an increase in utility expenses) and a fall in revenue, resulted in the Abu Dhabi luxury sector experiencing double-digit declines in profit levels.

-17.0 -18.0 -19.0 -20.0 -21.0

-21.6% GOP (PAR)

POR: Per Occupied Room* | PAR: Per Available Room*

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Q2 2018

Abu Dhabi Market Report

SUPPLY AND DEMAND Room Supply

1,083

At the end of 2017, DCT Abu Dhabi reported a total hospitality inventory of 26,743. As of the end of Q2 2018, the total inventory has increased by 4% standing at 27,826. Notable openings during 2018 include Saadiyat Rotana Resorts and Villas, Grand Hyatt Abu Dhabi Hotel and Residences Emirates Pearl.

Rooms added to the total supply during 2018.

4%

26,743

Total hospitality supply at the end of 2017.

Demand 4.5 4.0 3.5

Millions

3.0

3.89M

4.29M

Apr 2017 1.61m

7.3% in 2018

2.5 2.0

1.73M

1.5 1.0 0.5 0

2016

FORECASTS

2017

Apr 2018* * Latest figures released by DCT Abu Dhabi

The below graph shows the forecast for hotel room supply. The total forecast supply includes all projects that have progressed to the planning phase. This represents an inventory increase of 19.4% or 5,317 rooms. However, approximately 72% of the total forecast supply is currently under construction and is expected to be completed by 2020. This represents an inventory increase of 12.5% or 3,486 rooms.

18% 16%

5,317 (20 Projects)

Increase of

19.4%

14%

Occupancies to increase, providing positive impact on ADRs Cavendish Maxwell forecasts that Abu Dhabi will continue to grow its guest demand by 8%, 6% and 4% between 2018 and 2020 as hotels in the Emirate continue to diversify their service offering.

DCT Abu Dhabi data shows the current average length of stay is 2.6 days with a double occupancy factor of 1.5.

Double occupancy factor refers to the average number of guests per occupied room.

Total Forecast Supply Additional Rooms

20%

Demand in the form of vistors and overnight guests staying in Abu Dhabi hotels totalled 4.29 millon in 2017. Hotels in Abu Dhabi continue to diversify their offerings to adapt to the change in guest demographic. Historically Abu Dhabi hotels have been heavily reliant on the business sector, however the Emirate has experienced a segment shift from business to leisure. Promotion in short-stay vacations and developments such as the The Louvre and Yas Island have helped build Abu Dhabi’s profile as a leisure destination. Abu Dhabi has seen positive results, recording a 7.3% increase in guest numbers year-to-date.

Jun 2018 – Dec 2020 Additional Rooms

Based on the anticipated supply and keeping the above figures constant, Abu Dhabi can expect the following average occupancies in 2020.

3,486 (13 Projects)

77.5%

12%

8% 6% 4%

Increase of

12.5%

100% Percentage of forecast supply completed by 2020

10%

78.2%

75%

79.6%

50%

2% 0

0

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Abu Dhabi occupancies

11

Q2 2018

Abu Dhabi Market Report

METHODOLOGY Sale prices and rents are derived from Property Monitor (www.propertymonitor.me), a real estate intelligence platform established by Cavendish Maxwell in 2014. Property Monitor provides real-time, market-wide transactional data and trends.

Working with governments, agencies, banks, developers and corporate investors, it provides deeper insight into real estate advisory, investment, and lending activities. The average sales price per sq ft is based on the Property Monitor Index which incorporates signed contracts, registered transactions, valuations and listings verified by Cavendish Maxwell’s market leading valuation department.

Supply projections for residential projects are based on the Property Monitor Supply Tracker which tracks supply in real time, regular tracking of construction projects, new launches and delays. This is achieved through site inspections as well as regular feedback from developers, contractors, Cavendish Maxwell’s building consultancy team and related government entities.

STRATEGIC CONSULTING AND RESEARCH

40

Our consulting and research team includes seasoned professionals with international advisory experience offering bespoke and localised services. Through them, our clients immediately gain access to our knowledge base, technical expertise and highly skilled individuals, making us the development partner of choice. The team leverages their global expertise to offer tailored advice to clients in the MENA region covering all real estate classes including residential, office, hospitality, education, mixed-use developments, among others.

The team partners with developers, investment companies, family offices and the government to deliver actionable development and real estate investment strategies aligned with prevailing and forecasted market conditions. The work of the advisory team is supported by Property Monitor, the UAE’s only real estate data source offered by RICS accredited property professionals, as well as multidisciplinary valuation and investment departments.

BANKS

Our documents and advice meet banking and audit criteria, proven by our presence on over 40 bank panels across the Middle East.

KEY SERVICES Market Research

Portfolio Strategy

Development Recommendations

Property Data

Advisory Services

Education Advisory and Valuation

Feasibility Studies

Highest and Best Use Studies

Market Entry Strategy

Site Analysis

Disclaimer:

The information and analysis contained in this report has been obtained from and is based on information from a variety of sources generally regarded to be reliable and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons.

The report and analysis does not purport to represent a formal valuation of any property interest and must not be construed as such. Such analysis including forward looking statements are opinions and estimates only and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these variables can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report.

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Q2 2018

Abu Dhabi Market Report

PEOPLE Jay Grant MSc IRRV (Hons)

Nigel Armstrong FMAAT

E: jay.grant@cavendishmaxwell.com

E: nigel.armstrong@cavendishmaxwell.com

Paul Barker BSc (Hons) MRICS

Sofia Underabi MRICS AAPI

E: paul.barker@cavendishmaxwell.com

E: sofia.underabi@cavendishmaxwell.com

Founder and Chairman

Partner Head of Commercial Valuation

Moe Abeidat

Chief Executive Officer

Partner Head of Residential Valuation

Andrew Love MA (Hons) MRICS

Chief Technology Officer Property Monitor

Partner Head of Investment and Commercial Agency

E: moe.abeidat@propertymonitor.ae

E: andrew.love@cavendishmaxwell.com

Manika Dhama BA (Hons), MBA

Dan Harrison BSc (Hons) MRICS

E: manika.dhama@cavendishmaxwell.com

E: dan.harrison@cavendishmaxwell.com

Associate Partner Strategic Consulting and Research

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Associate Partner Hotels, Hospitality and Leisure

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