Dubai has been well known for some time as offering great opportunities for property investors. In fact, in the last 20 years or so, this commercial centre in the Middle East has become one of the most popular cities for foreign investment. In 2018, a staggering 18.5% of all Dubai real estate properties sold were bought by foreign nationals, according to the Dubai Land Department (DLD).
Although lesser known, even greater opportunities exist in Dubai commercial property. There are many good reasons to consider investing in a commercial space in Dubai. In this article, we will cover the key reasons to choose to invest in a commercial space in Dubai.
Stable Investment with High Returns
Real estate in general represents a good long-term investment which offers stability and returns on investment in the long-run. The value of these returns of course varies depending on the real estate market you choose to invest in, and Dubai has been shown to deliver very strong returns on investments in its property market. Recent reports have shown that investors are currently enjoying returns of an average of 6% to 7% when it comes to rental yields. Property prices in Dubai, too have received solid growth over the last two decades, and although this growth has plateaued in recent years, growth is expected to pick up and in 2020. You can find more statistics on the Dubai property market on bayut.com, propertyportal.ae, zoomproperty, lamudi.ae, etc.
These trends are even more pronounced when it comes to commercial real estate in Dubai. Dubai is well-established as a centre for commerce and business in the region, and this is not showing signs of changing anytime soon. In fact, the Dubai business sector continues to grow, attracting more and more foreign businesses. This means commercial properties are in high demand, a demand that is predicted to grow in coming years, supporting strong returns on commercial property investment.
Diversity of Properties
When you think of commercial real estate, offices and similar spaces probably spring to mind. These are certainly an important part of the commercial real estate scene, but in Dubai there are many more types of commercial properties. These include shops and other retail spaces, restaurants, warehouses, factories and even private hospitals, schools and clinics. As Dubai’s business sector continues to grow, as well as it lively expat and foreigner worker communities, all of these commercial spaces are more and more in demand.
This diversity in the types of commercial properties available makes Dubai an attractive place for investors because there is a high degree of flexibility in terms of investment. Mid to upper level investors may choose to invest in higher end properties including hotels, shopping malls and large-scale commercial developments. Smaller end investors can choose to invest in individual commercial properties.
High and Growing Demand
We have already touched on the fact that Dubai’s business and commercial sector is growing. This is great news for investors, because growth in this area means growth in demand for commercial real estate. The UAE was ranked 16th out of 138 economies by the Global Competitiveness Report 2016-17, the top economy in the Middle Eastern region. The UAE Department of Economic Development, along with the International Monetary Fund (IMF) predict strong economic growth for Dubai, particularly in the real estate, manufacturing and tourism industries.
This is associated with high demand for commercial properties, both freehold offices and commercial spaces, as well as large commercial developments. Recent examples of the latter include the Dubai Science Park with over 500,000 square feet of leasable space as well as retail and restaurants, and the business park Innovation Hub with a massive 1.8 million square feet of commercial space including boutique offices, commercial buildings and retail spaces. This growth will not only deliver strong returns on investments in turns of high rental yields, but also increase in property values over time.
Leaseback Arrangements
Under UAE regulations, it is possible to set up a leaseback arrangement on commercial property in Dubai. This can be a highly attractive arrangement for both occupying owners and investors. Under a leaseback arrangement, the previous owner sells a property and then continues to lease it back from the new owner. For the previous owner (now leaser) this can mean being able to continue to use a favorable property but without the costs of ownership, and while receiving a welcome cash injection through the sale. For the new owner, they now have an investment with guaranteed rental returns from a long-term, stable tenant. For these reasons leaseback commercial investments have become a sought-after arrangement for many property investors in Dubai, with a number of opportunities available.
Potential for Gearing
A further advantage of investing in commercial property in Dubai is that you can then use this investment for gearing in order to receive more returns. Gearing involves borrowing extra funds in order to put them into your investment. Although this involves extra risk (as borrowing money will always involve risk), this opens the investor up to greater returns. The concept is simple: if you invest twice the funds, you will receive twice the return on your investment.
Commercial property in Dubai, as a stable, long-term investment, makes a highly favorable type of property to use in this process. As commercial property is generally well-regarded by financial institutions, this makes it easier to borrow funds in order to boost your investment and increase returns. Additionally, as commercial property in Dubai represents a low risk investment, this reduces the risks associated with gearing, therefore making it safer to pursue this strategy in order to secure greater returns.
Final Thoughts
Investing in real estate in Dubai can represent a smart, long-term investment. The market has shown to have high demand over many years, thanks to the city’s status and an economic and business hub, as well as growing expat and foreigner worker communities, drawn not only by work opportunities but also great amenities, facilities and lifestyle.
Commercial properties in Dubai offer particularly great opportunities for investors. Growing business and commercial sectors combined with general economic growth means that demand for commercial spaces are high, and will continue to be so in the future. This means commercial property in Dubai is likely to yield strong returns as well as delivering increases in property value over time.
