Abu Dhabi financial free zone set for office space boost

Aldar

• Aldar and Mubadala to build 37-storey tower on Al Maryah Island
• Abu Dhabi faces shortage of prime office space to meet demand
• Number of businesses at ADGM grew 30% last year to 1,378

Abu Dhabi’s Aldar Properties and Mubadala Investment Company have struck a deal to develop 63,000 square metres of commercial space within Abu Dhabi Global Market (ADGM), and are eyeing plots of land to further increase the free zone’s prime office supply. 

ADGM is Abu Dhabi’s financial free zone, located on Al Maryah Island in the north-east of the UAE capital. As in neighbouring Dubai, Abu Dhabi faces a shortage of top-tier office space to house its growing number of local and international businesses, many of which are setting up in ADGM. 

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The total number of operational entities within ADGM increased by 30 percent to 1,378 over the past year, the free zone reported this month. Total active licences also grew by 30 percent annually, to 5,546 – including permits for financial and non-financial companies – while total assets under management rose by 56 percent, although ADGM did not reveal the value. 

As the first stage of the joint venture announced today (Thursday) Aldar and UAE sovereign wealth fund Mubadala have agreed to build a 37-storey office tower initially, plus other commercial assets at ADGM in the future. 

The initial project will provide 63,000 sqm of leasable floorspace and is expected to be built by 2026. It follows Aldar’s acquisition from Mubadala of four existing office towers at ADGM for $1.7 billion last July, and the 25-storey Al Maryah Tower in December for AED450 million ($122 million). That deal saw Aldar take a 60 percent stake and Mubadala the remaining 40 percent. 

All the towers are held by Aldar’s subsidiary Aldar Investment Properties. They were 76 percent occupied at the time of the acquisition and are now 96 percent let, demonstrating rising demand for ADGM office space over the past year, the company said.

The addition of the new tower – also to be held by Aldar Investment, with Aldar owning 60 percent and Mubadala 40 percent – will bring Aldar Investment’s total net leasable area of commercial office space to more than 400,000 sqm.

The partnership is expected to play “a pivotal role in developing the commercial office offering on Al Maryah Island, which continues to experience a surge in demand”, the companies said. 

A growing market

Prime office rents in three out of six Abu Dhabi locations monitored by consultancy Knight Frank for its market update published in February recorded annual increases of 3.5 percent to 12 percent in 2022. 

Occupancy rates reached 95 percent in 2022, driven by rising demand from banking and financial services firms in particular. Knight Frank calculated Abu Dhabi addced around 32,000 sqm of new office space last year – up 5 percent year-on-year – against just 26,000 sqm of pipeline stock. 

Knight Frank partner and head of Abu Dhabi David Crook said:  “The most critical factor in supporting rental growth is the severe shortage of prime Grade A office space. This is, of course, a double-edged sword – a lack of supply is to an extent holding back true demand, with occupiers willing to settle for older stock in more secondary locations.

“With just [26,000 sqm] of new office stock expected over the next two years, the upward pressure on best-in-class rents is likely to persist.”

Real estate consultancy firm CBRE noted in a report this month that Abu Dhabi’s office market will start to see increased levels of activity in 2023, “which, alongside constrained levels of new supply, will underpin further rental growth”.

Jassem Saleh Busaibe, chief executive of Aldar Investment, said on Thursday: “Through our ongoing management and successful leasing programme of the four ADGM office towers, we continue to see considerable demand for Grade A office space on Al Maryah Island. 

“Through a phased approach, the joint venture will continue to increase the supply of prime office space on the island to ensure the ADGM free zone grows from strength to strength as a financial centre of global significance.”

Khalifa Al Romaithi, executive director of UAE real estate at Mubadala, added: “Through this joint venture with Aldar, we are solidifying our commitment to enhance the business ecosystem and attract prime partners to Al Maryah Island.” 

Both Dubai and Abu Dhabi slipped places in the 33rd edition of the Global Financial Centres Index published this month. Dubai dropped five places to 22nd and Abu Dhabi dropped three places to 35th, out of 120 locations.