Several local and regional companies in Dubai are following the lead of residents by transitioning from renting to owning properties, driven by escalating rental costs.
Mirroring the behavior of Dubai residents over the past few years, many local and regional companies are opting to purchase properties to counter the upward trend in rental prices. This shift has notably influenced Dubai’s residential property market dynamics in the aftermath of the pandemic.
Real estate industry analysts observe a prevalent trend in both office and industrial sectors, wherein companies are increasingly inclined towards owning properties rather than renting them.
Robert Thomas, head of agency at Cushman & Wakefield Core, highlighted, “We observe a prevalent preference among local entities to consolidate their growth plans within existing spaces or buildings to avoid sudden rental hikes or eviction threats commonly witnessed in the residential sector. Nonetheless, this inclination is primarily observed among local or regional entities, whereas multinational corporations and global occupiers tend not to possess their real estate holdings.”
He further emphasized that local brokerage firms in the real estate sector have transitioned to owning their own office spaces, potentially leveraging their networks to secure favorable rates. This shift is evident in the 24 percent year-on-year growth in office sales transactions observed in 2023, alongside a corresponding 23 percent rise in median sales prices.
Limited strata offices
Robert Thomas from Cushman & Wakefield Core noted that companies are grappling with limitations stemming from the scarcity of strata office spaces available for purchase, with transaction activity predominantly concentrated in key districts like Business Bay, Jumeirah Lake Towers (JLT), and Barsha Heights, where such offices are abundant.
Regarding district performance, Business Bay leads the pack with a 46 percent share in transaction volume, closely followed by Jumeirah Lake Towers at 26 percent, mainly due to their higher density of strata offices. Thomas explained, “Most other free zones and districts feature office stock owned by single landlords, which are not on the market for sale.”
Thomas further mentioned that the consistent demand for office units under 2,000 sqft is fueled by their ease of leasing and initial design and sale strategies. This size category represented over 84 percent of all transacted offices in 2023, solidifying its status as the preferred choice for sales.
Buying warehouses
Unlike the office market, Adam Wynne, associate partner for capital markets and occupier/landlord solutions at Knight Frank, pointed out that in the industrial and logistics segment, occupiers are choosing to purchase warehouses.
“Due to the exorbitant sub-lease fees prevalent in the UAE, many occupants are choosing to buy their warehouses. Although this ties up the asset value funds on the company’s balance sheet, considering the rent paid to a private landlord and the authority sub-lease fees, which typically range from 20-30 percent per annum, occupants often perceive more ‘value’ in purchasing a warehouse when taking a longer-term perspective,” stated Wynne.
As Knight Frank previously reported, demand for warehouses in Dubai is surpassing supply, leading occupants to potentially lease more secondary stock.
Knight Frank notes that Dubai is witnessing a notable increase in institutional investments from the US, driven by factors such as the UAE’s strategic location, e-commerce expansion, and the necessity for efficient supply chain solutions. However, Dubai is encountering a shortage of prime industrial and logistics land, underscoring the significance of expansion initiatives by authorities like Dubai Investment Park and Jebel Ali Free Zone.
Adam Wynne also mentioned that typically, large corporate entities prefer leasing over purchasing, as it provides business flexibility in case of relocation and enables them to remain asset-light by avoiding costly real estate on their balance sheet.
“Despite rising rents, occupants still prefer renting as a strategy and seem willing to pay for quality. When comparing the UAE to other global markets, it still offers competitive rents compared to more mature commercial markets such as Europe and the US,” he commented.
