Is Dubai’s commercial real estate in crisis?
On this week’s episode of Taking Care of Business, join our Operations Director; Paul Kelly and our Managing Director; Marc Walters, to discuss the commercial property market in Dubai and uncover why they think the commercial property market in Dubai is in crisis.
Demand vs. supply
During the first half of 2023, Dubai witnessed a surge in new business registrations, with 30,000 businesses setting up shop. However, the availability of commercial office space has not kept pace with this demand. In fact, Mark and Paul struggled to identify any significant office space handovers in recent years, highlighting a growing issue in the market.
Rising rents and overheads
As demand for commercial space outstrips supply, landlords have begun raising rents, putting pressure on businesses, especially smaller ones. Many businesses face the prospect of higher overheads, which could impact their profitability. For some, the cost of relocating to larger or more suitable premises has become prohibitively expensive.
Investor interest in commercial real estate
Despite the challenges, Dubai's commercial real estate market is attracting attention from investors, both large and small. The potential for high returns, with yields often exceeding 10%, has piqued the interest of private investors who traditionally focused on residential properties. With occupancy rates at 92.7%, commercial space remains in high demand.
Factors that drive business growth
Several factors are contributing to the growth of businesses in Dubai. These include the city's lifestyle, safety, ease of setting up businesses, 100% foreign ownership, and a low corporation tax rate of 9%. Dubai's reputation for delivering on its promises and continuous investment in infrastructure also make it an attractive destination for businesses.
A call out for more office spaces!
Mark and Paul emphasised the need for developers to address the shortage of office space in Dubai. While there are plans for commercial spaces, they are not keeping pace with the city's growth. Initiatives to encourage small and medium-sized businesses, including favourable financing options, are essential to address the current crisis in the commercial real estate market.
The future of Dubai's commercial real estate
In conclusion, Dubai's commercial real estate market faces a critical shortage of office space, driven by increasing demand from businesses looking to establish themselves in the city. While this presents challenges for smaller businesses and rising overheads, it also offers an opportunity for investors seeking high yields. The city's pro-business environment, lifestyle, and infrastructure investments continue to attract entrepreneurs and corporations alike.
However, it's crucial for developers and policymakers to take proactive steps to address the shortage of commercial office space to sustain Dubai's growth as a global business hub.
Keen to know more?
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And don't forget to check out our Allsopp & Allsopp Q3 Market Snapshot here.