An office in Dubai as an investment: ten arguments and three caveats

Dubai's office segment has outpaced residential on rental growth for two years, and a settled set of arguments has grown around it. Here they are in order, followed by the parts that are usually omitted.

The ten arguments

• Low vacancy. Two to three per cent in the best locations; quality space transacts quickly.
• Company formation. On the order of 70 000 registrations a year, and each one eventually needs a physical address.
• Capital inflow. The UAE remains a hub for private wealth, and corporate headquarters follow it.
• Population growth. Around 4 million residents means a growing number of teams, and therefore desks.
• Little competing supply. Developers build predominantly residential; few office schemes launch.
• Government developers rarely sell commercial. That tightens the secondary market further.
• Tax regime. No holding tax and no capital gains tax for an individual, and ownership supports a golden visa.
• Entry price. From roughly $6 000 per square metre, with interest-free payment plans appearing regularly.
• Currency. The dirham is pegged to the dollar, so the asset is effectively dollar-denominated.
• Rental growth. Three consecutive years of double-digit increases in class A.

The three caveats

Liquidity is thinner than in residential. The buyer pool for an office is smaller and more professional. Selling takes longer, and the price is negotiated against a tenant and a lease rather than against a view.

The tenant is the asset. An office without a lease is floor area; with a lease it is income. Valuation follows the covenant, the unexpired term and the rent against market — which means due diligence is on the tenant as much as on the building.

The cycle is real. Today's vacancy is historically abnormal, and 24 million square feet arrive by 2030. Modelling ten years of current conditions is not conservative. Model it at a normalised vacancy and a normalised rent, and see whether it still works.

Who this suits

An investor with a longer horizon who is comfortable underwriting a tenant rather than a district, and who does not need to exit quickly. For a first purchase in Dubai, residential remains the simpler instrument — there are more comparables, more buyers and a shorter learning curve.