An influx of commercial buyers entering the Dubai real estate market

An influx of commercial buyers entering the Dubai real estate market

Sunday 09 May 2021Wed 16 Feb
An influx of commercial buyers entering the Dubai real estate market

Allsopp & Allsopp Real Estate report huge rises across the board for their commercial department with commercial sales transactions increasing by 142% since Q1 2020.

Head of Commercial, Emrah Yar explains:

The commercial real estate market in Q1 of 2021 has been extremely active. Both buyer and tenant enquiries for properties have been through the roof for Allsopp & Allsopp. We have seen many more sales than normal. The commercial market is usually made up of 85-90% of lettings transactions compared to only 10-15% of sales transactions but this quarter, we’ve seen this change significantly to around 60% lettings and 40% sales. I’ve worked in the commercial real estate market in Dubai for a number of years and I’ve never seen never seen the market as it is now.

Commercial property offers high ROI

The number of enquiries we’ve had has increased in sales by 86% this quarter compared to Q1 of 2020 and lettings by 91% in the same time frame. Amongst these enquiries, we have had buyers unsure on committing and the commercial team have had a lot of educating to do. There are so many rewards to be gained from buying a commercial space - like I said earlier, the return on investment can be much higher than that of a residential purchase.

For example, we recently sold an office with a sitting tenant in JLT for AED 6,200,000 that generated a net return of 9.3% for the purchaser. Often, by looking at the tenants profile, you can get a rough idea on how long they will be there as most companies will have a three to five year plan - this is where investors turn to commercial over residential as they can provide a much higher ROI and a more stable tenant resulting in a more stable income.

To give a working example; as an investor looking to buy in a prime building, they could be looking to buy a unit shell and core at an average cost of around AED 1200 per Sqft. To fit the office out, Added to this there will be approximately AED 200 per sqft for a fit out. When we add fees into the equation, the purchaser is looking at an 'all in' price of AED 1,400 - AED 1,500 oer sq ft. Because of the undersupply for this type of property, it can rent for AED 150 per sqft. This gives the investor just shy of a 10% ROI.

Buyers mostly from overseas

Allsopp & Allsopp commercial buyers are mostly coming from overseas but we are seeing local businesses opting to buy an office space rather than renting - companies that have been up and running for more than three or four years are making the switch.

The buyers we see coming from outside of the UAE have been lured by the way Dubai has navigated through the pandemic with only a brief but strict lockdown. The city has continued to operate to a degree where many businesses have been able to survive and in some cases grow and emerge. The pandemic has meant that many countries across the globe are still experiencing some form of lockdown whereas Dubai is operating much more freely - of course, with safety procedures firmly in place.

I believe that economically, it is going to take the world a long time to recover from the pandemic and investors and business owners are looking into their options as a result and making decisions based on where and how they can survive and expand. A lot of the companies that are buying commercial properties are holding companies who operate in several industries. They are setting up a hub in Dubai as they see this as one of their safest options. Dubai is already a central hub for the world and is easily accessible making it the perfect place to locate your business.

An undersupply?

The commercial market is performing much like the villa communities in Dubai. If a unit becomes available for let or sale in a good condition, desirable location and at an attractive price, it is taken straight away. These spaces are becoming few and far between. If you see a property between 800 sqft and 1100 sqft which would cater for around eight to ten employees - there will be many offices available. If you have a company of twenty five to thirty people, an office from between 2500 sqft and 3500 sqft- there will only be a few properties available in a desirable location. There is a significant undersupply for these offices.

Commercial market prices stable

Sales and lettings commercial prices as a whole, I would say have remained stable, however, buyers and tenants are willing to pay a premium for an office space that is desirable, in a well sought after tower and in good condition. In terms of pricing for the commercial real estate market in Dubai, the prices are varied and are more tower specific than areas across the city. Two buildings can be next to each other and vary vastly in price. The address on a business card means a lot and is important.

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