Abu Dhabi's retail sector is feeling the pinch of weaker demand levels as consumers have become more prudent with their spending - both from rising cost of living and impacts of the launch of VAT at the start of 2018.

CBRE's Abu Dhabi Market Overview report said that despite the overall weaker market sentiment, major malls continue to enjoy comparatively strong occupancy and rental levels during the first quarter of this year.

During Q1, prime rents for typical line shops (mall-based) ranged between AED2,500–3,200 per sq m per annum while similar units within off-island locations had rents between AED2,000–3,200 per sq m per annum.

CBRE said that although rental ranges remain wide, average rentals declined by around 8 percent year-on-year, with more severe declines for secondary and tertiary locations.

With retail inventory levels expanding, mall operators are now becoming more open to negotiating with tenants and have become more generous with incentives and contract terms, the report noted.

Analysis of the on-going development pipeline indicates that about 0.29 million sq m of new retail space is expected to be handed over in the Abu Dhabi market during 2018–2020.

Over the next three years, total retail development is expected to reach close to 1.9 million square metres, roughly 18 percent of the existing retail stock.