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New trend opens up for Dubai commercial realty

(Staff Report) / 17 August 2011

DUBAI — A key trend that has followed the epochal socio-political changes in the Middle East and North Africa region is the increasing prominence of Dubai as a preferred foreign direct investment destination.

Led, particularly, by financial institutions – several of them looking at promising alternative destinations for relocating their corporate headquarters – and corporate entities eyeing an entry to the wider Middle East, North Africa and South Asia (MENASA) region, Dubai is underlining its hub status in the region.

With traditional sectors such as retail, trade, logistics and tourism serving as the firm fundamentals of Dubai’s economy, the city is being increasingly preferred by corporates to serve as a strategic gateway to the emerging and frontier markets, especially in the MENASA region, which witnesses surging consumer demand.

According to the fDI Global Outlook Report 2011, Dubai is leading the Middle East region as the most attractive city for foreign direct investment, and is also the fourth most attractive destination in the world, next only to Singapore, Shanghai and London.

The global cities that compete with Dubai to serve as strategic business hubs, however, have limiting factors – the phenomenal high rates for commercial property, as well as the high cost of living.

ECA International’s ranking of the world’s most expensive cities places Dubai at 175th, significantly more competitive than Sydney (ranked at No. 16), Paris (20) or Singapore (36) when it comes to the cost of living of expatriates.

This presents a unique advantage for the city that the corporate entities are looking to leverage – the central geographic location of Dubai which serves as an effective platform to grow regionally; the comparatively lower cost of living and the higher economic competitiveness. These three factors also contribute to a strong potential opportunity for the city’s commercial property.

A spokesperson of Hamptons MENA, the premier property services company in the Middle East and North Africa region, observes that the opportunity for corporate entities and financial organisations to invest in the city’s commercial property is real and is expected to gain ground in the near term.

“The most perceptible shift in demand trends is the number of enquiries for purchasing commercial property as against renting out. This is led by various factors including the location, the build quality and the potential returns on investment.”

The affordability of prime commercial property in the city’s business nerve centres serves as an added incentive for corporate customers, especially financial institutions, who are looking to establish their full-fledged regional headquarters in Dubai.

This, in fact, complements an emerging trend whereby high net worth individuals and investors are looking at buying already rented commercial property due to the guaranteed returns.

“This trend makes perfect business sense for the investors because the property already has an assured yield. They do not have to look for new tenants as the property is already leased out,  and the investors can leverage the existing market prices to make commercial property investments of long-term value,” said the Hamptons MENA spokesperson.

Alongside, the commercial property sector of Dubai is also witnessing another new trend of existing businesses seeking larger commercial space in prime locations. “Several offices are taking advantage of the current market situation to consolidate their operations, all under one roof by bringing together their diverse operations otherwise spread in various parts of the city,” said the Hamptons MENA spokesperson. This is largely in line with global trends whereby corporate businesses using lower-cost capital to opt for owning space than leasing commercial property.

With the property sector of the UAE expected to be energised further with the proposed extension of visa for investors, owning commercial property in the business nerve centres of Dubai will further add to the competitive advantages of business houses.

The opportunity is real and robust; developers are warming up to the option of selling commercial property than pursuing chequered rent-out strategies; and Dubai’s business prospects are bright. It could only be a matter of time that commercial property makes better and bigger business sense in Dubai.

·         business@khaleejtimes.com

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