According to reports, GDP Growth Rate in the United Arab Emirates averaged 4.51% from 2000 until 2017, reaching an all-time high of 9.80% even after reaching a record low of -5.20% in 2009. Commercial real estate allows to invest in a country’s economy and so allowing to be a part of the consistent economic growth; The evolution and growth of Dubai in the past decade highlights the reason for the continued interest in CRE investments in Dubai.
The UAE has never slowed down when it comes to infrastructure development and constant innovation to improve the quality of life and the ease of conducting business. The city is already well on its way to becoming the smartest city in the world. The development and innovation have a direct impact on economic activity which has a direct impact on commercial real estate development and investments. According to the Dubai FDI Monitor, in 2017 AED 27.3 billion in Foreign Direct Investment (FDI) capital entered the emirate, a rise of 7 per cent over the previous year, an increase greater than the growth in real GDP. FDI is always followed by high demand in commercial real estate, investors are aware of this fact.
Dubai has also recently seen laws like 100% foreign ownership of companies that are allowed in non-free zones for certain sectors. Dual licensing has been prevalent for just over a year, where the system allows foreign free zone companies to extend their operations to non-free zones. This now reveals a potential to unlock UAE’s economic growth-machine and stimulate a surge in office space requirement. This means that companies will have a larger variety of options to choose from as they are not restricted to specific areas.
Another interesting development which could potentially make it easier and cheaper to operate in multiple free zones across Dubai is ‘One Free Zone Passport Initiative’, which will allow companies to operate in multiple free zones under one single licence. This boosts the attractiveness of free zones and countering the potentially damaging effect of the FDI Law.
Demographically speaking, while some reports do not always reflect the rapid Dubai growth and expansion, it is evident when looking back at what has already been achieved and foreign companies and investors are not oblivious to that. The additional population numbers mean more prime commercial space is needed. This presents an opportunity in commercial real estate and investors see the financial potential in the rental income business. It’s, therefore, no surprise that investors Looking at the historic growth of Dubai, it is expected that future population growth will continue, which is likely to be a catalyst for more investments in commercial real estate.
For example, Business Bay is still dogged by strata owned space, which is suitable for startups and other SMEs and continues to be avoided by larger companies due to the lack of quality and the unavailability of large, uninterrupted spaces.
Freehold commercial areas have been starved of new project launches. We have not seen a new office building being developed by major and small developers for the past decade. New developments such as One Central, ICD Brookfield, One in JLT, Innovation Hub are all non-strata and present no opportunity for investors.
To buy Dubai commercial property as a form of investment is different from putting in money for a residential property. Property fund managers all agree that between commercial and residential properties, the former represents a more stable investment. Tenants usually stay for a few years and sign leases lasting around five years. Commercial real estate will continue to be the focal point for investments in the Emirate and across the region due to its link to economic growth and the country’s human satisfaction index.