Bridge to Abu Dhabi City Profile April 2011

Abu Dhabi City Profile April 211 Bridge to 23 Abu Dhabi s real estate markets have entered a phase of oversupply as major projects, launched during the boom period, approach completion amid a demand lull. In the short-term, market challenges remain as vacancies rise and rents decline from unsustainable levels. This is, however, a positive development for the occupier market and will improve Abu Dhabi s competitiveness. The future prospects for the Abu Dhabi real estate market remain very bright. The weight of sovereign and private wealth combined with the government s vision and commitment to invest in infrastructure and economic development will facilitate Abu Dhabi s continued emergence over the coming years as an important regional and global hub. The market s long term sustainability rests on Abu Dhabi s ability to capitalise on the current market correction through transparency improvements and regulatory reform. Combined with economic diversification, such measures will boost residential and corporate demand as well as shift the market orientation from speculationdriven development to a stable long-term investment model. Cover Image Christian Richters

2 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 3 Sustaining demand for Abu Dhabi real estate The approach to real estate in Abu Dhabi is shifting: from the industry as an independent economic driver to an industry Encouraging Innovation, Entrepreneurship and SMEs Observing other high growth countries worldwide illustrates Embracing Demography Similar to other economies in the GCC, in Abu Dhabi, Real Estate Regulatory Reform The Abu Dhabi government is in the final stages of issuing new capable of facilitating robust growth in a diversified, innovative, the decisive role of innovation and entrepreneurship in driving expatriates which form the majority of the population are laws/regulations including: and entrepreneurial economy. Challenges will persist in the diversified economic growth. transient because of the restrictive visa laws, current economic coming years, but leveraging this potential will support both uncertainties, and lack of small-scale investment options. Real estate regulatory body the real estate market and Abu Dhabi s broader economy. A recent report on innovation published by the Abu Dhabi Additionally, the quality of life indicated by things like access Strata law Executive Council indicates that Research and Development to education, healthcare and entertainment facilities lags Mortgage law While more effective policies to control future supply levels are (R&D) expenditure and venture capital activity are relatively neighbouring Dubai, although this will change as the city rapidly Trust-account law/escrow certainly required in the short term, generating sustainable long low. A range of factors limit innovation: the narrow economic develops in the coming years. Law regulating developers undertaking pre-sales term demand is the key to recovery of Abu Dhabi s real estate base, the high turnover of creative expatriates, and low levels of market. The following outlines the challenges that, if addressed spending on R&D and technical innovation. In a 21 study commissioned by the Abu Dhabi Executive Significant legal and regulatory progress on such issues will help today, will bridge the current volatility with a future in balance. Council, Abu Dhabi ranked 11 out of 56 global economies in improve transparency, boost investor confidence, and encourage Economic Diversification The Abu Dhabi government has established a number of R&D departments over the past two years, but these remain at the early presence of foreign high-skilled people, but 43 rd in ability to retain talent. High turnover of professional expatriates negatively demand for Abu Dhabi property. Some progress has been made, including: limitations on commercial use of villas and residential units Accounting for an estimated 54% of GDP in 21, the hydrocarbon stage of implementation. The private sector, including multinational impacts Abu Dhabi s economy because it discourages long as well as the improved enforcement of previous bans on multiple industry dominates Abu Dhabi s economy, highlighting the need companies, is lagging with few private organisations involved in term commitment to and investment in an economy offering no households sharing individual villas. However, the actual impact on for economic diversification, pivotal to generating sustainable advanced research, development or innovation in Abu Dhabi. guarantee of tenure. demand will directly depend on the degree of enforcement. growth and achieving the 23 Economic Vision (released in 28). Even compared to other Natural Resource Reach Economies including major oil exporters in the MENA region Entrepreneurship enables the commercialisation of innovation, but, in Abu Dhabi, it is constrained by various factors including Relaxing visa policy currently bound to a specific employer would foster a fluid labor market, boost innovation and entrepreneurship Centralising Real Estate Policy In Abu Dhabi, real estate policy and procedures are decentralised Abu Dhabi s dependence on hydrocarbons is high, reinforcing required developments to higher education, and the employer- and expand employment. Additionally, providing residency visas with responsibilities fragmented across multiple government and the need for economic diversification. linked residency status of the extensive expatriate workforce. to residential property owners would boost demand for Abu Dhabi semi-government bodies. Some limitations to collaboration and Additional barriers to entrepreneurship include the cost and real estate. Similar policies were implemented in Qatar, which will a centralised decision making process resulted in the lumpy In recognition of this challenge, the Abu Dhabi government effort of registering new businesses in Abu Dhabi, the high level induce other GCC markets to follow. supply pipeline, already producing sector specific oversupply. In is moving into new sectors like aerospace, alternative energy, aluminum production, knowledge-based industries, manufacturing, and tourism often through investment into of initial capital required, and the restrictive ownership laws. Relaxing current company ownership laws would improve Improving Transparency Lack of transparency concerning systems, laws and regulation, particular, there have been challenges regarding: Construction licenses and planning approvals international firms with a precondition for establishing operations Abu Dhabi s competitiveness and create jobs. In Dubai, the and access to information inhibits investment and business growth Land allocation in Abu Dhabi to encourage employment and knowledge transfer. Free Zone model facilitating the expedited and inexpensive in Abu Dhabi. Even the most basic economic and demographic Aligning supply with transportation and infrastructure plans establishment of companies without local partners was a data, needed for accurate business planning, can have limitations. Aligning the supply pipeline with demand Diversification requirements extend beyond economic activity major driver of economic diversification over the past 3 years. Plans to improve data dissemination through a centralised to employment: the government employs 3% of the entire In addition to creating jobs, expanding the Free Zone model statistical body have been welcomed, but in some instances there Previously supply-side uncertainty deteriorated investor confidence workforce and 9% of Abu Dhabi economically active national in Abu Dhabi would cultivate the growth of small and medium have been inconsistencies with other data sources. in the capital, but going forward, efficient policies emphasising the citizens. Moving away from dependence on government and enterprises (SMEs), which are the backbone of a flourishing, importance of achieving equilibrium while balancing affordability encouraging a diversified private sector both in terms of entrepreneurial, innovative, and diversified economy. and stability will help boost market sentiment. economic activity and employment are key to generating stable economic growth. Impact on Real Estate Demand Various initiatives designed to improve demand and achieve Consistent with the 23 Vision, important diversification the 23 Economic Vision are in progress, but the majority measures are underway, but improving employment and economic will impact demand only in the long term (5 1 years). In the activity will take time. Thus, the existing initiatives will only meanwhile, the market will experience supply overhang, slow marginally impact real estate demand over the next two years. absorption, and rent/price deterioration.

4 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 5 Economic and Demographic Overview UAE Economic Overview Following contraction in 29, the UAE economy recorded real growth of 2.3% in 21. Building on the nascent recovery and Over Q1 211, a wave of political unrest swept across the Middle East, but the UAE is seen as a safe haven. Following the Abu Dhabi Economic Overview Not only is Abu Dhabi the largest Emirate by land area, but it also controls more than 85% of the UAE s total oil output. While contributing Key Statistics Indicator 29 21 211F supported by higher oil prices as well as improvements in commerce, trade and tourism real growth is expected to rise turmoil, regional forecasts for average real GDP growth in 211 have reduced from 5.2% (December 21) to 4.5% (March 211). only one-third of the UAE s non-oil GDP, the capital dominates the national economy representing over 5% of total GDP. UAE to 4.7% in 211. In contrast, the UAE s real annual growth forecast remained Population (million) 5.7 5.19 5.3 The sharp oil price decline in 28/29 was a primary cause of constant at 4.7%. Between 21 and 29, total GDP growth averaged 9% per annum in real terms, largely driven by rapid growth in the oil and Population Growth (Y-o-Y) 2.4% 2.1% recent economic contraction, but prices have since recovered to The UAE s underlying economic sentiment has improved in the gas sector. Over the same period, non-oil GDP grew at a more Nominal GDP per Capita (US$) 4,123 46,11 54,775 an average of US$ 71 per barrel in 21. Current per barrel price is above US$ 1, potentially boosting average prices for 211 and past few months following announcements that, in 21, non-oil trade grew 14% Y-o-Y (UAE Ministry of Foreign Trade). Liquidity modest average annual rate of 3.6%. In 29, the Abu Dhabi economy declined by 7% (real GDP), but this quickly reversed Real GDP Growth (Y-o-Y) -3. 2.3 4.7 creating surpluses for the UAE federal government. This would in the banking system also improved in 21: total bank deposits on the back of resurgent oil prices. The Abu Dhabi Department Inflation (p.a.) 1.6.6 4. inevitably filter into the local economy and, hopefully, inject much needed liquidity into the real estate sector. increased by 12% Y-o-Y and loans increased by 3.1% Y-o-Y (UAE Central Bank). of Economy forecasts real growth of nearly 7% for 211, with the non-oil sector growing by around 1.6 % to account for nearly Exchange Rate (US$: AED) 3.67 3.67 3.67 48% of overall GDP. Abu Dhabi Population (million) 1.64 1.66 1.74 Population Growth Rate 1.1% 5.2% Nominal GDP per Capita (US$) 9,6 16,6 111,3 F: Forecast Source: Various Image Source: Sheikh Zayed Mosque

6 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 7 Demographics The population of Abu Dhabi Emirate was approximately 1.6 million Property Markets One of the last real estate markets impacted by the global economic As sectors become more tenant favourable and as the economy at the end of 29, with just under 1 million people (59%) living in the slowdown, Abu Dhabi started to decline only in Q4 28. Robust continues to diversify and grow, competitive market conditions will Abu Dhabi Rental Clock Q1 211 Abu Dhabi metropolitan area. Approximately 1.2 million expatriates demand combined with a limited supply of quality real estate led stimulate leasing activity as tenants seek lower rents and/or higher (non nationals) live in Abu Dhabi Emirate, comprising 75% of prices to peak at unsustainable levels in late 28. Since then, quality space. Additional demand is, however, unlikely to absorb all the total population (Statistical Yearbook of Abu Dhabi 21). the market experienced sharp declines corresponding with the the new space, putting downward pressure on occupancy rates. Abu Dhabi Metropolitan area contains the greatest concentration of expatriates with a higher proportion of Emirati nationals in the other two municipal areas of Abu Dhabi Emirate (Al Ain and Western economic slowdown, diminished investor confidence, liquidity contraction, and deceleration across all real estate sectors. Liquidity constraints and weakened investor confidence will limit sales transactions in 211. Off-plan sales are virtually non-existent, Rent / Price Growth Slowing Rent / Prices Falling Region/Al Gharbia). The 29 market correction also had positive outcomes: with limited demand concentrated on completed or nearly completed developers were forced to re-assess and rationalise projects, projects. The price gap between projects under development and Abu Dhabi s national population is relatively young with 42% under resulting in re-phasing and downscaling plans. Additionally, the those completed/nearly completed is therefore expected to grow. 15 years of age. 55% of the total (UAE nationals and expatriates) population is aged between 15 64 years. According to recent United Nations projections, this age mix, and the correspondingly economic slowdown allowed the government to refocus on design and implementation of regulatory reforms required to improve transparency and drive demand. In 211, downward pressure on sale prices and rents will put Abu Dhabi in the mid-downturn stage of the property cycle with Rent / Price Growth Accelerating Rent / Prices Bottoming Out high birth rate, will grow the national population by approximately significant rental declines expected during 211. 3.4% per annum through 213. Even with supply pipeline delays and contraction, 211 handovers Expatriate demography pivotal for expanding real estate demand is of completed units will exceed the previous year's completions. In progression along the supply curve, Abu Dhabi lags Dubai: The success of various government initiatives to increase jobs and expand the population will define real estate demand and ultimately Retail Hotel Residential Office defined primarily by employment trends rather than demographic whereas Dubai is past the supply peak for most sectors, Abu Dhabi determine the pace of market stabilisation and recovery. These Source: Jones Lang LaSalle influences. The government announced a series of economic is still approaching the peak. This is good news for the capital s issues are explored in greater depth by market sector. initiatives to diversify the economy and drive employment in sectors tenants supply expansion will lower rents and improve options like aerospace, alternative energy, industrial, knowledge based available for their real estate needs. industries, media and tourism. Spurred on by economic diversification, the expatriate population is anticipated to grow by 13% to around 1.4 million by the end of 212. Image Source: Sowwah Island, Mubadala

8 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 9 Office Market Supply While the total current office space in the Abu Dhabi Metropolitan area is around 2.3 million sq m, a mere 11% is international quality, professionally managed Grade A office space. A high proportion of current office stock is actually in converted residential buildings. In 21, the only Grade A building handed over in Abu Dhabi was Aldar s HQ building adding 51, sq m to total stock located on Al Raha Beach. In Q1 211, only one major office building was delivered: Sky Tower on Reem Island (GLA 58, sq m). Through the rest of 211, many other large projects are scheduled for delivery including Sowwah Square, Capital Plaza, International Tower and Etihad Towers potentially contributing another 3, sq m to Abu Dhabi s office stock, although completions could be subject to further delays. Through the end of 213, total supply in Abu Dhabi District will swell to 3.5 million sq m. This supply pipeline comprises Grade A and B space, which will address the current shortage of Grade A space, but will escalate vacancy across the board. Office Supply 29 213 4, Office Stock (, sqm) 3, 2, 1, Demand In 21, the largest office deal was the lease acquisition by French oil services firm Technip of 2, sq m in Guardian Tower (Danet Abu Dhabi). Represented by Jones Lang LaSalle, this comprises the largest private sector office leasing deal for many years and illustrates tenant bargaining power in the current market climate. Other significant leasing deals over the past year included ABB, Advanced Technology Investment Company (ATIC, a subsidiary of Mubadala) and Rolls Royce, which all leased space in Aldar HQ. Additionally, in Sowwah Square, space was preleased to firms primarily in the financial services and professional services sectors. Over the coming year, declining rents will stimulate upgrading activity. Currently, demand from new market entrants is limited and the majority of leasing activity over the coming year will originate from quality-conscious organisations already located in Abu Dhabi looking to consolidate or upgrade. Government entities and state owned enterprises dominate large scale requirements, but will have a limited impact on demand for private developments. Most of this demand is already earmarked for specific government backed developments or stems from organizations moving into their own purpose-built headquarters. On the assumption that rents will decline, some tenants are now seeking short term rent renewals in existing premises with plans to relocate once the market is more tenant favourable. 29 21 211 212 213 Completed Future Supply Source: Jones Lang LaSalle, Q1 211 Image Source: Aldar HQ

1 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 11 Performance More than 5% of new space is in large scale mixed-use projects, which are subject to high construction costs due to historic pricing and the quality and complexity of these schemes. Recently started standalone office buildings can benefit from simpler, small-scale and lower cost construction, thereby allowing these building owners to eventually offer lower rents, effectively creating a two-tier market. Peaking at AED 3,8 per sq m in Q4 28, average rents have since declined 5%. In Q1 211, Grade A rents declined 5% Q-o-Q to AED 1,9 per sq m, while average Grade B rents declined 9.5% Q-o-Q to AED 1,4 per sq m. The Y-o-Y decrease for Grade A was 24%. Even though most executed deals were for smaller space requirements, quoted rents decreased dramatically for all grades compared to Q4 21. Tenants are clearly in a strong negotiating position, which is likely to strengthen as supply expands. Over the coming months, this dynamic will drive down rents. Grade A Office Rents 28 Q1 211 Since there are only three projects currently selling office space Sky Tower and Tamouh Tower (previously known as Infinity Tower) on Reem Island and Prestige Tower in MBZ City Abu Dhabi s office sales market is limited. Asking prices on Reem Island are approximately AED 1,6 sq m, but sale transactions are minimal. Starting at under 5% in early 21, vacancy rates since increased to 1.4% in Q1 211. Average vacancy will continue to rise throughout the coming year as handovers continue, but vacancy patterns by building will evolve quickly. A large portion of vacant space is now in recently completed buildings, which will attract tenants looking to upgrade and leaving higher vacancies in older poorly managed buildings provided that rents reduce further to competitive levels. Market Outlook Rent declines will boost leasing demand, creating opportunities for tenants to optimise value through relocation to better quality space without increasing costs. Rent and vacancy trends will diverge based on quality, increasing the performance gap between Grade A and B during 211. Office rents are expected to continue to fall in line with increasing vacancies. In 211, the gap will widen between high grade and low grade space; well located, well designed high grade office space offering functionality and accessibility will face lesser decline. New regulation prohibiting operation of businesses from residential villas will consolidate some demand and marginally mitigate the degree of oversupply; however, it will prove insufficient to absorb the supply pipeline. Dubai s office market offering an abundance of supply, lower rents and more developed urban infrastructure will continue to impact Abu Dhabi s office sector, especially in the short term. Medium to long term office demand is a function of current government economic diversification initiatives to create economic step change. 4, 3,8 Prime Rents (AED/sqm) 3,5 3, 2,5 2, 1,5 3,19 3, 2,8 2,8 2,5 2,2 2,2 2, 1,9 1, Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Source: Jones Lang LaSalle, Q1 211

12 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 13 Residential Market Supply Total residential stock across the Abu Dhabi Metropolitan area is approximately 188,8 units (excluding labour accommodation). Considering the 5-year supply pipeline, completions over the past year were limited: just 8,2 new homes were handed over in 21. Abu Dhabi s existing residential stock comprises primarily low quality units. Currently, because of the supply shortage in 27/28, a considerable portion of total stock consists of villas structurally or informally partitioned into multiple units, but new regulations will reduce villa shares over the next 2 3 years. By the end 213, total supply will rise to 25, units, 68% of which will be apartments. In Q1 211, around 3,7 residential units were handed over. The bulk of these units are on Reem Island Sky and Sun Towers and three buildings in Marina Square which, after over a year's delay, recently received completion certificates. Additional units were finished in Q1 in the Al Reef Villas project; the entire development, including 4,1 units, is due for completion before the end of 211. Demand Over the past two years, there was a fundamental shift in residential demand in Abu Dhabi. Prior to 29, demand was driven by speculators and long term investors, but since the market correction in Q4 28, demand has been dominated by end-users and primarily for rental. Currently, Abu Dhabi s residential supply/demand disparities vary by segment: while the affordable and middle income segments accounting for incomes and sharing ratios are undersupplied, the high income market is moving into over-supply, leading to a downgrading across the board. As a result of multiple households sharing single units, combined with the Dubai Commuter Effect, significant latent demand lingers in the affordable and middle income segments. Since the majority of new supply targets the high income segment, the unfolding of latent low to middle income demand will depend on rent correction and affordability trends in the coming years. In Q1 211, rents continued to decline; for example, the average rent for a two bedroom apartment fell 3% Q-o-Q, to an average annual rent of AED 14,. While low quality units in some areas have experienced rent deterioration exceeding 35% Y-o-Y, the average rent decline for Abu Dhabi was 14% Y-o-Y. Across the capital rents fell over recent quarters, but the greatest declines were in MBZ and Khalifa City A. Although more modest accommodation in shared villas experienced major rent correction over the past year, rents are still high. Competition from substitute markets will affect rents across Abu Dhabi, but the impact will be most severe in these outlying areas eroding rents through 211 and 212. High-end supply expansion will push Abu Dhabi rents down over the next two years, unleashing pent up demand for higher quality and lower space, which is highlighted by recent relocation from shared accommodation to single occupancy units. By the end of 211, a total of 16, additional residential units are scheduled for delivery. In addition to Al Reef Villas, other major completions will come from Reem Island, Raha Beach and Yas Island. Changing market conditions put a large proportion of the residential pipeline, as announced in 28/9, on hold or cancelled. Compared to Dubai, Abu Dhabi s development boom started later and was short lived, leaving supply/demand closer to equilibrium. While Dubai already passed the supply pipeline peak, Abu Dhabi s new supply in 211 (16, units) will exceed 21 (8,2 units). Residential Supply 29 213 25 Number of Units (,) 2 15 1 5 29 21 211 212 213 Completed Future Supply Source: Jones Lang LaSalle, Q1 211 Image Source: Reem Island Many developers are currently reassessing and re-positioning projects to meet lower and middle income demand, but we expect the shortage of affordable housing stock will persist in the next few years. New demand for up-market housing is generated from Emiratis and management level expatriates, but without additional initiatives to stimulate employment and population growth especially of expatriates current demand trajectories are insufficient to absorb the anticipated supply pipeline. Recent government initiatives to support the residential market include proposals to ban villa sharing and plans to reduce commuting by encouraging government related companies to house their staff in Abu Dhabi. Performance Since the unsustainable market peak in 28, marked by booming demand and limited supply, average residential rents fell around 4% in Abu Dhabi. Even with recent declines, rents in Abu Dhabi remain relatively high compared to neighbouring Dubai. The rental cap combined with rapid rent inflation up to 28, created a two tier market in Abu Dhabi. Even today, residents that signed leases before 27 continue to pay rents below current market rates. In terms of residential sales, since the market peaked and stalled at the end of 28, average prices declined over 45%, falling from highs of AED 21,53 per sq m with some projects achieving prices above AED 32,3 per sq m to AED 11,84 per sq m in late 21. Over the last two quarters, average prices were relatively stable for completed and nearly completed projects in Reem Island and Raha Beach, but transaction volumes have been limited. Market Outlook Continued rent declines in Dubai, and the anticipated 211 supply pipeline for high-end apartments in Abu Dhabi, will continue to push rents down across the Abu Dhabi market in 211/212. New supply, in areas like Reem Island and Al Raha Beach, will improve options for high income residents, spark upgrading demand, and increase vacancy rates in lower quality stock. The positive impact is that lower housing costs will improve the competitiveness of Abu Dhabi, drawing commuters back from Dubai and lowering employment costs for companies thereby stimulating demand. Over the long term, performance of the residential sector will depend chiefly on the success of government initiatives to grow and retain jobs and population (primarily expatriate) in Abu Dhabi.

14 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 15 Retail Market Supply Currently, Abu Dhabi s Metropolitan area has a total retail stock of approximately 1.5 million sq m (GLA), but the majority of existing retail space is street front stores located outside of enclosed malls. In Q1 211, there were no recorded handovers of retail space. The last major retail centre completed was Delma Mall in Mussafah, which delivered a total of 15, sq m in phases during 21. Abu Dhabi now has 17 major retail centres with a combined GLA of 639, sq m, which comprises 42% of total retail supply. Of the total mall-based retail space, regional and super regional malls comprise approximately 8% and in terms of performance dominate the market. The primary regional and super regional malls already open on Abu Dhabi Island include Marina Mall, Abu Dhabi Mall, Al Wahda Mall, and Khalidiyah Mall. Retail Supply 29 213 25 Supply (, sq m) 2 15 1 5 29 21 211 212 213 Completed Future Supply Source: Jones Lang LaSalle, Q1 211 Over the coming years, the handover of both large regional shopping centres and smaller community retails centres will increase the dominance of malls in Abu Dhabi s retail landscape. In 211, a number of new malls are due for completion including: Paragon Mall on Reem Island, Mushrif Mall on Airport Road and Bawabat Al Sharq in Baniyas. Other major additions to mall retail supply in the medium term include Yas Mall, Arzanah Mall and Reem Mall. By the end of 213, supply will increase by 6, sq m, expanding total GLA to 2.1 million sq m. Demand Continuous growth in retail spending derived both from a growing resident population and higher tourist levels is boosting demand for retail space is Abu Dhabi. On Abu Dhabi Island, regional malls achieve over 95% occupancy and maintain waiting lists of retailers seeking to expand their presence in the capital. While retail demand is concentrated on Abu Dhabi Island, centres in other locations across the metropolitan area sustain steady interest. The recently opened Delma Mall is reportedly 65% leased (although these retailers are still not all operational). Jones Lang LaSalle is also witnessing interest to lease space in the Deerfields Town Centre, which is due for completion in late 212. Compared to the past, retailers are now more cautious, adopting a more selective and strategic approach to expansion plans. Increasing supply enables retailers to be more strategic by expanding options and improving their negotiation position. Performance Since Q3 29, average rents for major malls on Abu Dhabi island remain unchanged. For prime line stores, average annual rents in these malls remain around AED 2,75 per sq m, Market Outlook Abu Dhabi faces a shortage of quality retail space, illustrated by streams of Abu Dhabi shoppers driving to Dubai. In the coming years, expansion of quality supply will reduce the retailer commuter trend. while average annual rents for Food and Beverage outlets range between AED 2,1 2,9 per sq m. This is based on Jones Lang LaSalle s assessment of achievable rents given limited transactions. Although the 211/212 supply pipeline is dominated by regional malls, a significant portion of space will come from community centres. Over time, the retail market will shift focus from large regional and super regional malls to community centres, emphasising service High quality regional and super regional malls maintain a retail and tailoring retail offerings to suit each individual community. 4 5% rent premium over retail centres outside Abu Dhabi Island. In 211 and 212, the scale of new retail supply anticipated in Outside of the main retail centres on Abu Dhabi Island, average rents declined over the past year and, because of anticipated supply handovers, we expect persistent softening of rents throughout 211. Retailers are encountering difficulties generating sufficient revenue to support target sales/rent ratios, putting additional downward pressure on rents. Abu Dhabi will increase market competition and soften rents. Consequently, the rent gap between strongly and poorly performing retail centres will widen. The performance of each centres will depend upon numerous factors including: management quality; tenant mix; and physical factors like location, access, parking allotment and retail design quality. Over the past year, retailers gained bargaining power, which made lease incentives more common. In addition to rent free periods (for example, 3 6 months grace period on a 3 year lease) major retail groups are now benefiting from lease clauses providing rent holidays until malls achieve pre-defined occupancy levels, usually 6% 7%. Retail Rental Performance 28 Q1 211 35 Prime Rent (AED/ sqm/annum) 3,25 3,16 3, 3 2,75 2,75 2,75 2,75 2,75 2,75 2,75 25 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Source: Jones Lang LaSalle, Q1 211

16 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 17 Hotel Market Image Source: Shangri-La Hotel, Qaryat Al Beri Supply Following substantial hotel supply expansion in 29 with 3,4 Between 211 and 213, 3, hotel apartments are due for Demand Abu Dhabi Tourism Authority (ADTA) estimated that total hotel Growth of visitor arrivals and hotel guests reflect the evolution new rooms added across Abu Dhabi, the growth in quality hotel delivery. In reality, the current market conditions will likely cause guests in 21 reached around 1.8 million, representing an of the corporate market, specifically highlighting the capital s supply slowed down. In 21, 1,1 new hotel rooms were delays and cancellations. 18% increase over the previous year. In 22, there were just emerging status as host for international exhibitions and delivered. This trend continued in Q1 211 with the completion 8, hotels visitors, indicating a doubling of business travel conferences (MICE). of just one additional property: the 15 room Trianon Hotel in 21 openings were concentrated in the upscale segment, which and tourism in 8 years. the CBD. currently forms about 8% of the total graded hotel inventory in Even with a growing leisure market founded on notable projects the capital. Since there are few midscale and budget hotels in the Based on ADTA forecasts, visitors to Abu Dhabi will grow like the F1 Grand Prix circuit and the Ferrari World theme park on In 211, a total of 1,5 new hotel rooms, spread through pipeline, upscale hotels will dominate total supply in the short term. rapidly in the coming years. In 211, total visitors to Abu Dhabi Yas Island the corporate sector continues to drive Abu Dhabi s 6 properties, are due for delivery across Abu Dhabi. The 213 are projected to grow 15% (to 2 million visitors), followed by an hotel market. The business and MICE sectors accounted for supply pipeline indicates significant future growth: in a mere Within the upscale segment, however, there will be a supply shift additional 2% increase in 212. 8% of all visitors in 21. While development plans include three years, the existing hotel stock will nearly double through from conventional business hotels to city resorts. Projects like the broadening the city s leisure offering, hotel demand will remain the addition of 7,8 new hotels rooms in Abu Dhabi. Park Hyatt, St. Regis on Saadiyat Island and the Rocco Forte Hotel tightly linked to the business sector in the short to medium term. on Abu Dhabi Island are expected to enhance the leisure offering and invigorate demand. Hotel Room Supply 29 213 Abu Dhabi Graded Hotel Room Supply 25, Other 2% Hotel Rooms 2, 15, 1, 5, 3-Star Midscale 16% 5-Star Upper Upscale 49% 29 21 211 212 213 Completed Future Supply Source: Jones Lang LaSalle Hotels, Q1 211 4-Star Upscale 33% Source: Jones Lang LaSalle Hotels, Q1 211 Image Source: Yas Island Hotel, Aldar

18 On Point Abu Dhabi City Profile April 211 On Point Abu Dhabi City Profile April 211 19 Performance After peaking in 29, Abu Dhabi s hotel market experienced substantial decline in 21, evidenced by all major performance indicators (occupancies, room rates and RevPAR). Occupancy, for example, declined from 68% in 29 to a low of 58% in 21. In Q1 211, hotel performance in Abu Dhabi temporarily stabilised, reflecting unchanging supply and continued growth in visitor arrivals over this period. Average occupancy rates increased to 67% (YTD February 211), compared to an average of 54% over the same two months of 21. Occupancy was boosted primarily by reduced room rates: ADRs declined around 2%, from AED 94 YTD February 21 to AED 76 YTD February 211. As a result, revenue per available room (RevPAR) remained virtually unchanged at AED 5 (YTD February 211). While established business locations maintained solid occupancy rates over 7%, emerging areas, like Yas Island and Between the Bridges, experienced difficult trading conditions and lower occupancy levels. Market Outlook In the short to medium term, total demand is expected to grow strongly. The massive supply pipeline, however, will put continuous downward pressure on occupancy rates and ADRs in 211 and 212. ADTA forecasts strong growth for the total visitor arrivals: 3 million by 215, representing an average annual increase of 1%. In 211 and 212, the business segment will continue to dominate demand. The strongest potential for medium term growth is in the relatively untapped leisure segment. Corresponding with the Abu Dhabi government s strategy to diversify its economy and develop the tourism industry, the hotel market will benefit from strong governmental support and on-going campaigns to promote tourism for the Emirate. Hotel Performance Abu Dhabi (28 YTD Feb 211) ADR (AED) 16 9 14 8 12 7 6 1 5 8 4 6 3 4 2 2 1 28 29 21 211 YTD Feb YTD Feb YTD Feb YTD Feb ADR (AED) Occupancy Source: STR Global Image Source: Emirates Palace Hotel

Jones Lang LaSalle MENA offices: Abu Dhabi Al Niyadi Building 1 th Floor, Office 13 Airport Road PO Box 36788 Abu Dhabi, UAE Tel: +971 2 443 7772 Fax: +971 2 443 7762 Riyadh Abraj Atta'wuniya South Tower, 18 th Floor King Fahd Road PO Box 13547 Riyadh 11414 Saudi Arabia Tel: +966 1 218 33 Fax: +966 1 218 38 Dubai Emaar Square Building 1, Office 43 Sheikh Zayed Road PO Box 21429 Dubai, UAE Tel: +971 4 426 6999 Fax: +971 4 365 326 Jeddah Jameel Square Level 4 Suite 46 Tahliya and Andalus Streets PO Box 4538 Jeddah 21511 Saudi Arabia Tel: +966 2 66 2555 Fax: +966 2 669 43 Cairo World Trade Centre 19 th Floor 1191 Corniche El Nil Street Cairo Egypt Tel: +2 2 25777 836 Fax: +2 2 25777 839 For questions and inquiries about the Abu Dhabi real estate market, please contact: Investment: Andrew Charlesworth Head of Capital Markets andrew.charlesworth@jll.com Valuations: Peter Stebbings Associate Director peter.stebbings@jll.com Strategic Consulting: Laura McLauchlan Director laura.mclauchlan@jll.com Retail: David Macadam Head of Retail MENA david.macadam@jll.com Hotels: Chiheb Ben-Mahmoud Executive Vice President MENA chiheb.ben-mahmoud@jll.com Ekaterina Savaskova Abu Dhabi Office Agency ekaterina.savaskova@jll.com Authors: David Dudley Head of Abu Dhabi Office david.dudley@jll.com Craig Plumb Head of Research MENA craig.plumb@jll.com Jesse Downs Head of Management Consulting MENA jesse.downs@jll.com Ghada Amhaz Abu Dhabi Research ghada.amhaz@jll.com www.joneslanglasalle-mena.com COPYRIGHT Jones Lang LaSalle IP, INC. 211 This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.