Offices, Retail, Commercial: What’s Trending Now? — by Angela Gegg

The preferred business destination

Situated in the Middle East, bordering the Gulf of Oman and the Persian Gulf coast, the United Arab Emirates boasts an ideal geographical location, and Dubai in particular, allows companies and corporate hubs free reign to conduct business in this remarkable city with its visionary leadership, high quality infrastructure, expat friendly environment, low import duties and until recently, no tax.

In less than 40 years Dubai has transformed itself from a local trading community into one of the most successful cities in the world.

Over the years, its progress continues to make local headlines and it is now an enormously attractive destination for business hubs and an HQ destination for corporate giants.

Commercial Real Estate is an ideal prospect for investors, multi-national companies, and leading corporate and regional entities to set up and establish themselves in Dubai as the city offers both businesses and its residents a unique work environment with over 200 nationalities, a multicultural environment, and a safe, family friendly quality of life. We are also a preferred business destination with access to financing and investment support and promotion by the government so these numbers will only continue to rise. In the latest study by the research company, InfoMineo, of the Fortune 500 companies, 196 of these are covered in the Middle East and Africa (MEA) region.

Dubai dominates the ranking with 138 companies having their HQ located there.

Dubai was in fact the first emirate to open its property market to foreign ownership (followed by Abu Dhabi). Under the Dubai Commercial Law, in a Dubai Economic Department (DED) Zone the foreign ownership is 49% with a 51% majority by a local sponsor and/or partner and designated to operate in onshore areas. To further support the growing foreign investment, the government created Free Zones allowing foreign investors 100% ownership of their companies and to operate offshore. There are now over 45 Free Zones in the UAE (with more than 20 in Dubai), and each has its own authority and set of rules.

The UAE retail sector forecast is due to expand by a Compound Annual Growth Rate (CAGR) of 4.9% to reach $71 billion by 2021, according to the Dubai Chamber Analysis.

Commercial real estate defined

Commercial real estate provides venues for companies to carry out daily operations and cater to customers appropriately. Companies lease and even buy commercial real estate in order to maintain cost effectiveness and tractability. While many people assume commercial is relative to mainly offices, it also includes, but is not limited to: shops, restaurants, hospitals, schools, clinics, factories, and retail space. Some of the higher-end properties include hotels, buildings, commercial plots, community centres, shopping malls and industrial space – these are generally a target purchase for mid- to upper-level investors. For more, read our commercial market analysis.

I can tell you first hand that the demand for commercial real estate in Dubai is at a high. Dubai is home to more than 20,000 international companies*.

The demand for offices

hallway between glass-panel doorsAreas covered by the Dubai Economic Department (DED), that are of particular interest to my clients are in Business Bay, Dubai Marina, Barsha Heights, Al Quoz, and numerous commercial towers along Sheikh Zayed Road. Business Bay and Barsha Heights are among the top two areas of interest from my own client base in my years of commercial real estate.

Areas of interest in Q1 however were outside the standard commercial inquiry, as I was receiving multiple requests from large corporate companies wanting to lease large spaces, (20,000 – 50,000 plus square feet) in areas like Arjan and Sustainable City; both areas are known for having no service charges attached to their prices, which seems to be why these locations have been growing in popularity, especially considering that we now impose 5% VAT on all commercial leases in Dubai. With service charges in some buildings being up to AED 25, having locations that offer a service charge free option is quite a considerable saving when calculating large space rentals.

As I mentioned earlier, Dubai itself has over 20 free zones, and without a doubt some of the most popular free zone office requirements, based on the number of inquiries, leads and deals that I broker are:

  • The DMCC, Dubai Multi Commodities Centre, which has been recognised as the world’s number one free zone and centre of Global commodities trading, three times crowned “Global Free Zone of the Year” by financial times fDi Magazine Dubai International Financial Centre;
  • DHCC, Dubai Healthcare City Free Zone, a health and wellness destination and home to more than 130 clinical partner including hospitals, clinics, diagnostic laboratories and outpatient medical centres;
  • DIFC, Dubai International Financial Centre, the leading financial centre in the Middle East, Africa and South Asia – and the only free zone to have an independent regulator and judicial system;
  • DAFZA, Dubai Airport Free Zone, which boasts having the most attractive incentive packages and support to multinational companies from every continent and strategically located next to one of the busiest airports in the world;
  • TECOM (which in itself has multiple licenses and zones including Media City, Internet City, Science Park, Dubai Design District, IMPZ, Outsource City).

Basing on Q1 of this year the DIFC, DMCC and TECOM zones are by far in the lead of client requests.

Let’s talk about retail

While companies may dominate the office space in Dubai, let’s not forget that there are also huge opportunities in the retail sector. Dubai ranks among the top cities in the retail sector and has successfully positioned itself as the retail hub of the region as it is home to the world’s biggest malls, traditional souqs, two major shopping festivals which draw tourists and expats alike; and Dubai is renowned for having an abundance of food and beverage outlets to choose from. Dubai is an international shoppers dream with so many exceptional retail destinations to choose from, and retailers know all too well.

The UAE retail sector forecast is due to expand by a Compound Annual Growth Rate (CAGR) of 4.9% to reach $71 billion by 2021, according to the Dubai Chamber Analysis.

Based on these findings, the Dubai Chamber of Commerce and Industry announced and established the formation of a new organisation called “the Dubai Retail Group” of which some of the biggest retail network operators have signed up to be members, Landmark, Al Tayer, Azaeda, and Chaloub, just to name a few. This group aims to protect the interest of retailers in Dubai, which will ultimately attract new retailers into the region and expand this already booming industry.

Meraas, the developer responsible for projects like La Mer, BoxPark, City Walk, The Beach, Jumeira Bay, BlueWaters, Pearl Jumeira, Kite Beach, Last Exit and The Outlet Village, has injected retail units in the market outside of the mall environment, and there is still no shortage of retail applicants. Being that one of my main areas of expertise is in retail brokerage, I have an extensive client base and this has far from slowed down. One would think that with all the availability that perhaps retail inquiries have slowed down, but on the contrary, I still receive on average five retail applicants per day.

Hotels are also outsourcing primarily F&B venues, as well as other retail spaces. According to data by Dubai Statistics Centre, a subsidiary of the government of Dubai, in Q4 of 2017 there were 485 hotels along with 196 hotel apartment buildings. This year I find myself working with more hotels that individual owners on retail requirements. It’s the way forward in retail. For more, read our article Global market hits home in Dubai.

While it is also true that some retailers are facing hard times, others are expanding and adding new concepts while consumer confidence remains high. There is no better place in the region to embark on retail than in Dubai.

No end to Industrial

When most people think about commercial real estate, their minds gravitate to primarily offices and retail, they are not usually thinking about industrial properties. But as we all know, Dubai is home to some of the world’s biggest attractions, including the world’s tallest building, the biggest mall built by world class developer, Emaar; we also have attractions like the largest indoor theme park, the iconic man-made island, the Palm Jumeirah, the Dubai Eye (due for completion this year) which will be the world’s tallest Ferris wheel, just to name a few; Dubai is literally the city that never stops building. With all of these amazing and endless supplies of projects and people who are working at the construction sights, there must be Industrial, Labour Camps, Warehouses, Factories, Showrooms, in existence.

Industrial Real Estate is in the midst of a golden age in Dubai and shows no signs of weakening.

Aside from construction and never-ending developments, new markets for Industrial space are emerging daily and e-commerce is booming, hence the need for more and more warehouses. Construction is ongoing and labourers need to be accommodated, hence the constant demand for Labour Camps. In years prior JAFZA and DIP were in high demand but this year I have seen more interest from buyers in areas like Ajman and Sonapur, considering the prices are lower and the ROI is higher.

From an investor standpoint, Industrial tends to be a more stable, long term investment for owners and a consistently in demand property type with guaranteed rental yields and capital growth. Warehouses and Labour Camps are the two most common requested industrial properties in my field as construction trails a demand for Labour Camps, and the proliferation of e-commerce will undoubtedly continue.

VAT on commercial properties

I would like to end my article with the topic of Value Added Tax – VAT – which was implemented in January 1st 2018 and is applicable to all commercial properties – offices, retail, warehousing, showrooms, labour camps and even car park spaces. It seems that it has been ambiguous for my individual commercial real estate owners and investors as in the past few months I have had very few commercial (individual) owners in my portfolio register for VAT, I find myself brokering deals and having to insert clauses that the client is responsible to pay VAT pursuant to the UAE law; this is however extremely dangerous for the property owner, as he/she is the one responsible to pay the VAT on behalf on the client, as 5% VAT is paid on top of the rent to the owner. It is the owner’s responsibility to give the tenant and invoice, with both TRN’s, and to pay the VAT to the government, if the owner has not registered he is to able to do so and it will be left in the tenant’s hands to pay this. If their tenant disappears and does not in fact abide by the clause in the contract, the owner themselves will be responsible to pay this, hence why it is imperative that commercial property owners register for VAT.

Even with the implementation of VAT on commercial properties, I am extremely optimistic. The facts are that the UAE is ideally located, it is the corporate hub for the Middle East and Africa, with a stable and proactive political environment. Our visionary leaders care about foreign investment and development in Dubai while providing high quality infrastructure along with a unique work environment.

With its growing population, Dubai is a city which provides a rich environment for the commercial real estate sector to continue to flourish.

While the trends may change, the market will remain steady and thriving.

 

By Angela Gegg

Head of Commercial, Edwards and Towers

Why was it important for you to provide an overview of commercial real estate? I live and breathe commercial real estate. As the Dubai market is widely dominated by the residential sector, I feel there needs to be more awareness in the commercial market.

 

In just a few words, describe the UAE real estate market here in 2018: It has been an interesting year thus far, to say the least. I do feel the market has started stabilising and I personally believe that post-Q3 the market will be buzzing again.

 

*Data provided by DubaiDED.ae

This article was originally published in Property Finder Trends, Vol 4. Click here to read the full report online or download the PDF.