UAE’s real estate market is ever-growing. Commercial properties include offices, warehouses, villas, and co-working spaces. With the rising economy, investing in commercial real estate brings its own set of advantages and disadvantages.
Investing in commercial property benefits investors in the UAE who want to grow their portfolios. Here, we’ve listed some pros and cons of investing in commercial real estate to help shareholders make a wiser decision.
Pros of Investing in Commercial Real Estate
Some pros of commercial property investment are listed below.
High Potential For Income
UAE commercial properties are highly sought after by investors learning how to start a real estate business in Dubai.
- Earning potential significantly increases with commercial real estate as compared to residential real estate due to a higher annual return.
- Commercial properties have a higher tenant count, accounting for a higher income potential down the line.
Freezone Investments
Freezone areas are perfect for commercial property investors. The main reason for this is that:
- Free zones are economic zones that offer free customs duty benefits to companies and expatriate investors.
- It favours companies by allowing investors to own the company fully and also grants them tax exemption.
- Freezone areas are better than freehold areas as freehold areas in Dubai tend to be reserved for residential property investment.
Long-Term Payments
Tenants signing leases for a commercial property end up signing longer ones as they aim to operate their businesses in a commercial setting.
- This allows investors to be reassured that they have a steady flow of cash at hand as tenants pay more.
- These lease agreements also follow rental increases over a set period, further incentivising investors to decide between renting or leasing a commercial property to tenants.
Professional Tenants
UAE is a business hub for investors and expatriates alike.
- Investors can rest assured that their tenants are highly professional.
- Commercial property landlords can hold a professional business relationship with their tenants and can expect maturity from their end.
- Tenants also tend to pay their rent on time, making them even more suitable for operating in a commercial setting.
Booming Business Potential
UAE is ranked 16th in the world on business-friendliness.
- With its policies, it has taken initiatives to streamline business opportunities and processes and offered tax incentives for investors.
- This makes it a highly desirable location for investing in commercial real estate.
- Commercial buildings, communication services, and easy transport make commercial buildings thrive.
Easier Market Evaluation
The prices of commercial property are easier to evaluate as compared to a residential building. Here are some reasons why:
- Factors such as the location of the property, the reputation of the developer, and its amenities are required for a proper evaluation.
- UAE is notorious for offering valuation services that are easier to understand, which can benefit first-time commercial investors.
Excellent Economic Growth
As a commercial hub, the UAE has an excellent economic growth over the past few years.
- This has caused investors to take a keen interest in the commercial sector and invest in real estate.
- For example, The UAE has seen a GDP growth rate of 3.5% increase from 2021 to 2022 and a staggering 9.31% from 2020 to 2021.
- The demand for commercial real estate investors continues to increase by the day, leading to a high annual return for investors and business owners.
Cons of Investing in Commercial Real Estate
While there are advantages to investing in commercial properties, there are also disadvantages that follow. Here are some cons of commercial property investment that should be known.
Difficult To Manage
Becoming a commercial property manager can be difficult. With the large space at hand, different tenants own their businesses in the property and daily operating costs. However, here are some tips that can be followed to ensure proper management of properties:
- Choose agents and tenants carefully.
- Know the laws and regulations by heart.
- Make lasting connections.
Starting Investment Costs
- Owning a commercial property involves a higher starting capital as compared to a residential property.
- In the beginning, it is common for a commercial building to require heavy investment from the investor’s pocket.
- Investors can save up beforehand to save themselves from this hassle.
Difficult Legalities
Commercial properties come with their legalities, including freezone and freehold laws, tenant and landlord regulations and building codes. One solution is to read up on the laws and regulations about the commercial sector to avoid future issues.
High Research Required
- Prior knowledge of the commercial sector laws, management, market trends, and rates is highly crucial to becoming a successful investor with a high annual return.
- It is best to get to know the current projects and opportunities to become more knowledgeable about the commercial sector.
FAQs
Renting or leasing commercial property comes with its own set of hassles. Investors should know four types of agreements for commercial real estate:
– Gross Lease: Tenant pays a monthly rent.
– Land Lease: A stretch of land gets leased out to the tenant.
– Modified Net Lease: Expenses get shared between the tenant and landlord.
– Triple-Net Lease: The tenant takes care of all expenses and the landlord earns more.
– Residential Property: Real estate that cannot be used for commercial purposes. For example, it is a type of property in the UAE that includes studio apartments, penthouses, duplexes, triplexes, townhouses, villas, and twin houses.
– Commercial Property: Used strictly for commercial reasons and tenants cannot reside in the buildings.
An investor and a housebuyer can both benefit if they have real estate apps on their phones, as they can solve any queries they have regarding the commercial or residential sector. Here are some of the best ones out there for UAE investors:
– Dubai Rest
– PF Expert
– Makani
– Dubai Now
Investing in commercial real estate presents a unique set of opportunities and challenges. On the positive side, commercial properties often offer higher income potential, long-term leases, and the benefits of portfolio diversification. They can be a lucrative addition to an investment portfolio for those seeking stable returns and appreciation over time.
Knowing the advantages and disadvantages can help investors make the right decisions.
Keep reading Property Finder blogs to learn more about the real estate market!
