Tuesday, February 2, 2016

Buying and owning commercial property is not for the faint of heart.

Generally speaking, commercial property, and in particular Dubai commercial properties, are way more expensive than residential investments and also cost more to maintain. On the other hand, for those with the capital, Dubai commercial properties also pay far higher dividends than residential properties when leased or sold.

Key pro: Higher rents

As an owner of Dubai commercial properties, you can command higher rent from your tenant than if you were the landlord of a Dubai property for residential use. Why? Because such types of Dubai property are usually larger and often feature more resources than residential properties. Moreover, renters of Dubai commercial properties are usually businesses who can afford to pay more for their use than tenants of residential units.

Key con: Vulnerability

Commercial properties are more vulnerable to the twists and turns of the economy than residential properties. For instance, if there is a slowdown in the economy, businesses can go under, move out and stop paying rent, while tenants of residential properties will often stay in their apartments or villas to ensure continuity of factors such as schooling and employment. Moreover, while as a Dubai commercial property owner you will benefit from a boom economy, your property can become a liability when business slows down. Moreover, given that Dubai is a hub for multinational organisations, activity of firms in the city is intrinsically linked to how their businesses perform in their home markets.

The outlook for Dubai property and in particular, the commercial segment, for this year is that of stability. The upcoming Expo 2020, the ongoing expansion of Jebel Ali port and the activity at Al Maktoum International Airport are expected to inject momentum into the Dubai commercial property market. Further, the Dubai government’s plan to upgrade the city for the Expo 2020 through infrastructure spending and encouraging foreign investments in various sectors will provide support for the commercial segment over the next few years.

Given that business activity is likely to rise due to the above-mentioned factors, we may see rents of Dubai commercial properties rising from mid to late 2016. This upward trend will be driven by new demand which will be seen as plans for Dubai’s mega infrastructure projects designed to establish Dubai as a global business hub, are achieved.

For most investors, residential properties are much easier to understand than commercial properties. Not surprisingly so, as there are many unknowns with long-term commercial properties as lending policies can change, financing terms are different and vacancies can last a long time depending upon global economic fluctuations. However, the gains are also much higher. For one, rental yields are higher for such Dubai property and hence monthly cash flows much more than an equivalent costing residential property investment in the same area.

For the latest Dubai commercial property investments in the UAE, click here.

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