Dubai: Is Commercial Realty Commercially Viable?

Commercial prices have underperformed residential prices in the last two years, which has resulted in the latter becoming top heavy as developers have announced a plethora of projects in this space. Whilst vacancy rates still remain high in the commercial space, there appears to be a shortage in the “affordable” segment. This shortage has resulted in higher yields being offered in this segment.

An overview of Dubai’s office supply shows that it has a similar composition of grade A, B, C to Singapore’s (Grade A – 30%, Grade B&C – 70%). This structure is conducive to nurture the growth of SME’s and start-ups as it offers affordable options. However, the future supply expected to be rolled-out in the next three years is top heavy (Grade A – 56%, Grade B&C – 44%), indicating a mismatch between demand and supply dynamics.

As tenants within the DED jurisdiction look for cheaper rent options, they will be forced to look in areas along the Mohammed Bin Zayed corridor such as Jumeirah Village Circle, Motor City, and Dubai Investment Park. DED company formation has been growing at 7% on average per annum over the last 5 years, creating a sustainable pipeline of demand for office spaces.

As demand for affordable commercial units begins to build up, especially in the DED space, developers will look at land repositories such as Jumeirah Village Circle, Arjan, and Majan to fill the supply gap. To date, there have only been a few developers who had started construction within the Mohammed Bin Zayed corridor in the commercial district. However, the rollout of supply is expected to increase as demand dynamics become more visible.

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