More profitable than profitable
As you know, the value of residential real estate in Dubai is steadily increasing, so that pioneer investors who invested their funds at the initial stage of the market's emergence received more than 100% return on their invested capital. By renting out their property, they currently receive good dividends from renting apartments and villas, reaching in many cases 10% per year. Investors who entered the market later currently have a return on rent of 6-8%. By international standards and in comparison with bank deposit rates, it is quite a profitable business, but the investor who is not looking for even more profitable opportunities is bad.
Such opportunities are now provided by the Dubai commercial real estate market. Currently, it accounts for only 20% of the total construction volume in the emirate. According to estimates by the region's leading information and analytical agency Zawya, Dubai will need about 1.8 million square meters by 2020 to meet the growing demand. m of commercial space. These data are quite consistent with the construction plans for the next few years.
In this scenario, the increased attention of investors to commercial areas is quite justified. An important point: commercial spaces are rented for longer periods than residential ones. The average rental period here is 3-5 years. Moreover, for many companies, the choice of an office location is largely due to the need to create and further maintain a customer or service base, which also takes more than one year.
Currently, the cost of commercial real estate ranges from $2,000 per 1 sq. m (offices in the Jumeriah Lake Towers area) to $6,000 per 1 sq. m (in the Dubai International Financial Center area). Pricing is influenced by both macroeconomic factors and the location and equipment of commercial areas.
Developers are united
Against the background of growing competition, developers maintain a unified view of the prospects for the development of the commercial real estate market. "The market is booming, and the demand for exclusive office space is growing rapidly," says Peter Riddoch, CEO of DAMAC Properties, one of Dubai's first and largest private developers. The company, which has an investment portfolio with a total value of about $3 billion, has created a separate division designed to ensure efficient operation in the commercial segment.
Imtiyaz Panjwani, Managing director of Dubai-based Pegasus Realty, shares a similar opinion: "Such favorable trends will continue due to the growing demand and interest of both local and foreign investors. In recent months, the housing market in Dubai has undergone various changes, even a slight decline has been noted, which cannot be said about the commercial real estate market."
Such an encouraging picture is undoubtedly to the liking of real estate agents. Tarek Said, CEO of STS International Properties, is confident that the dynamics of the commercial real estate market allows his company to implement the principles of effective marketing strategies and sales
Retention rate
As the "signature dishes" of the Dubai commercial real estate market, Omniyat's The Binary office complex in the Dubai Business Bay area and Al Fajer Properties' four Jumeirah Business Center office towers in Jumeriah Lake Towers deserve special attention, which were snapped up by investors literally in a matter of days after the opening of sales.
This excitement caused associations with the flurry of sales in the residential real estate segment observed in 2004-2005. However, according to John Sandwick, chairman of Cityscape, the world's second largest international real estate exhibition and conference held annually in Dubai, it is impossible to say for sure that commercial real estate prices will repeat the scenario that took place in the residential segment. "That period in the development of the Dubai residential real estate market was largely characterized by purely speculative transactions with guaranteed 10% premiums, which became a byword. Today, there is a different strategy - "buy and hold" rather than "buy and get rid of," says John Sandwick.
There are quite reasonable reasons for this. Either companies use commercial real estate for their own needs, or investors are attracted by the high return on its rental. And without words, it is clear that the latter is relevant. Moreover, real estate funds are beginning to explore the Dubai market. As a rule, they tend to keep commercial real estate in their investment portfolios for long periods – this factor also "slows down" resales in order to obtain "instant" profits.
A little arithmetic
Here are simple examples that will help you understand the financial component of investing in commercial real estate in Dubai. The office space on the 8th floor of the Al Manara Tower complex in the Business Bay area (developer - ETA Star) has an area of 176 sq. m. Its price is $4,320 per 1 sq. m, which is $760,320. The average rental rate for similar areas is about $600 per 1 sq.m. m per year, total - $105,600 per year, which corresponds to 13.8% of the value of real estate per year.
Another office space on the 8th floor in the I&M Tower complex in the City of Arabia area (developer - Galadari). Its area is 159 sq. m, the price is $2,265 per 1 sq. m, the total cost of the room is $360,135. With a rental rate of $450 per 1 sq. m. m per year, we receive rental income of 71,550 per year, which corresponds to 19.5% per year of the value of the property.
Obviously, the ratio of cost and return on rent in commercial real estate is very attractive, the return on rental of commercial real estate is almost twice as high as in the housing market. The reasons for the genuine interest of investors immediately become clear: by investing money in commercial real estate, they are not just diversifying their investment portfolio, but are looking, as they say, for a point of maximum benefit.
The prospects are bright, the opportunities are diverse
Not only large purchases are profitable, but also investments in commercial premises with a small area, which interests investors who have limited funds, but nevertheless want to succeed and benefit. The concept of a "split office" is beginning to spread in Dubai, due to the rapidly increasing cost of renting. For example, rent payments along Sheikh Zayed Avenue, one of the city's business arteries, amount to $600-1000 per 1 sq. m, and in the Dubai Marina area they reach up to $1400. Thus, many companies prefer to rent a small room in one of the prestigious areas of Dubai to maintain their image, while their main office is transferred to less prestigious, but low-cost rental locations. There is something to think about ...
It is known that before the beginning of the freehold era, residential and commercial real estate in Dubai could only have a local owner, at least a citizen of a state belonging to the Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Qatar and Oman). Now the real estate market is changing its face: there are more and more private owners with passports from all over the world. At the same time, new companies are springing up like mushrooms after the rain, and they all need both office and other commercial space. According to official data from the Dubai Department of Economic Development, 20 new companies opened in the emirate every day last year alone. In this regard, we can say that the investment attractiveness of the Dubai commercial real estate market will only grow.
The main thing is the brand
Another segment of commercial real estate that is interesting for investment is hotel and residential complexes, in which the investor is the owner of the apartments, and they are managed by a hotel operator.
"The construction of resort complexes in which high–class hotels, with their rich infrastructure, are combined with apartments or villas that can be purchased, is one of the most fashionable trends in the global real estate market," says Marina Golomedova, vice president of the Start-CBS concern. - There are such hotels in Barcelona, Paris, Milan, London, Algarve (Portugal) and many other tourist centers. In Dubai, several developers are leading this direction at once - IFA Hotels Resorts, ETA Star, Bonnington, etc."
The owner of the property always has a choice – either to use his property himself, resting for some time a year, or to make money on the increase in the value of the property by selling it after some time, or to receive money from the lease. Considering that such complexes are built by well-known companies, and they are managed by world-famous brands, we can say that this is one of the safest investments in real estate.
Perhaps the most important point when making a purchase decisionReal estate in a residential resort is a hotel operator managing the project. The presence of companies such as Kempinski and Sheraton, well-known in Russia, as well as Fairmont, which manages the Savoy Hotel in London, creates an atmosphere of investment security for the buyer.
However, such hotel and residential complexes are simply doomed to be expensive - they must provide high quality and create a sense of luxury. Due to this, investments in resort real estate are more reliable than investments in economical real estate with a low price.
