Amid rising rents, firms looking to own properties

In what seems like taking a leaf out of residents’ book, several local and regional companies in Dubai are increasingly making a shift from renting to owning properties amid rising rentals.

This is similar to the trend prevalent among Dubai residents who for the past few years are keen on buying properties in a bid to beat the rising rentals. In fact, this trend has been one of the key drivers of Dubai’s residential property market in the post-pandemic period.

Real estate industry analysts say the trend of companies looking to own properties rather than renting is prevalent in both office and industrial sectors.

Robert Thomas, head of agency at Cushman & Wakefield Core, said: “We particularly see local entities who know that their growth plans can be accommodated within the same space/building and they do not want to go through sharp rental increases or eviction notices as seen in the residential market. However, this trend is generally limited to local or regional entities, as multinational corporations and global occupiers typically do not own their real estate,” Thomas.

He added that real estate local brokerage entities will be an example that have moved into owning their space, perhaps linked to their ability to source attractive rates through their networks.

This has been reflected in increased office sales market sale transactions which grew 24 per cent year-on-year in 2023, accompanied by a 23 per cent increase in median sales prices.

Limited strata offices

Robert Thomas of Cushman & Wakefield Core said companies face constraints due to the limited availability of strata office spaces for purchase, with transaction activity concentrated in key districts such as Business Bay, Jumeirah Lake Towers (JLT), and Barsha Heights, where strata offices are prevalent.

In terms of district performance, Business Bay leads with a 46 per cent share in transaction volume, followed by Jumeirah Lake Towers at 26 per cent, primarily due to their higher concentration of strata offices. “Most other free zones and districts have office stock owned by single landlords, which are not available for sale.”

Thomas added that the consistent demand for office units under 2,000 sqft is driven by their ease of leasing and initial design and sale strategies. This size category accounted for over 84 per cent of all transacted offices in 2023, making it the preferred choice for sales.

Buying warehouses

Contrary to the office market, Adam Wynne, associate partner for capital markets and occupier/landlord solutions at Knight Frank, said the industrial and logistics segment is a segment where occupiers are opting to buy the warehouses.

“Given the aggressive nature of sub-lease fees in the UAE, we see many occupiers opting to purchase their warehouse. Whilst this then ties up the funds of the asset value up on the company’s balance sheet, when taking into account the rent paid to a private landlord plus the authority sub-lease fees – which are typically 20-30 per cent per annum, they would have to pay, occupiers often feel there is more ‘value’ in purchasing a warehouse when taking a longer-term view,” said Wynne.

As reported by Knight Frank earlier, demand is outstripping supply warehouses in Dubai and occupiers are faced with the prospect of leasing more secondary stock.

According to Knight Frank, Dubai is experiencing a significant influx of institutional investments from the US, influenced by the UAE's strategic location, e-commerce growth, and the need for efficient supply chain solutions. Yet, Dubai faces a shortage of prime industrial and logistics land, highlighting the importance of expansion plans by authorities such as Dubai Investment Park and Jebel Ali Free Zone.

Adam Wynne added that typically large corporate entities prefer to lease. leasing rather than purchasing which allows the business flexibility should they wish to re-locate and allows them to remain asset-light by not having the costly real estate sitting on their balance sheet.

“Whilst rents are increasing, we still see occupiers opting for renting as a strategy and are seemingly happier to pay for quality – and when comparing the UAE to other global markets, still at a more competitive rent than other more mature commercial markets such as Europe and the US,” he said.

Source

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