Dubai Commercial Real Estate: What’s Really Driving the Market? | Behnam Bargh

[Music] Welcome to the Real Estate Magilist Podcast, where we dive into the latest real estate in size and trends. Whether you are a seasonal investor or a first-time buyer, our podcast is here to provide valuable information and expert advice. This episode is powered by Bayeute, the UAE's leading property platform and proud member of the Dubuzo Group. Whether you're buying, selling or renting, Bayeute connects you with real estate solutions, tailored to your needs using innovative tools, like TrueCheck, TrueEstimate, TrueBroker and Bayeute GPT. From finding your next home to overtising your listings with confidence, Bayeute offers real photos, real prices, and real properties, helping you make informed decisions in the market. So welcome to another episode of the Real Estate Magilist Podcast. I'm very excited about this one because I've been meaning to talk about commercial real estate for a long time. We focus a lot on residential. So, I'm again introducing Mahmoud Al-Buray, Michael Hose, and today we got Ben Barg from CRC, managing partner. Thank you so much for having me. No, pleasure. So, commercial real estate, tell us all about it. What's going on right now? It is a sector where a lot of people that don't actually know about, and now slowly, slowly a lot of companies are also having commercial sector. We are focusing on any asset top, which is not residential, which is office, retail, warehouses, and any other commercial assets. People come to the way for business first or come here to leave first. I think, I guess, they come for business first, right? So they get a job and they come here. So commercial is as important as residential, but obviously when we talk about residential market, a lot of investors don't know much more about residential, so they invest in residential. In terms of supply and demand, how do you see it right now? You know, you touched on a very sensitive point that I'm a bit advocate. Over the last five or six years, real estate market in UAE, in particular, in DuBois booming, and a lot of investors investing in residential, a lot of developers are developing residential. I've been speaking to government. I've been speaking to developers. I've been speaking on radio, and literally begging for companies to come and develop commercial. From four years ago, we are kidding to a point that we are almost 100% occupancy in a lot of premium buildings, and that supply and demand kind of equilibrium is no longer there. So what happens is people even building for offices. Sometimes you have four or five people that they want to get. So the prices are going up and up and up. So the supply is short in a short demand. It's huge because a lot of people can see the population of the base growing. People need big offices and people need new trade licenses. And you know, the trade licenses linked with a jarry of an office. Yes, so it's really important. Good. If I'm wrong, a lot of people at the time of COVID were saying work from home, work remotely, no more offices. Do you see this is really happening? No more. Some international organizations. They are slowly, slowly going back to being full-time. But SMEs and obviously family offices here, we like we talk about our company as soon as we had finished the lockdown, we ask everyone to come back. We obviously adhere to the laws at that time. There were some limitations. Right. But now a lot of people say maybe companies now don't need big space because people work from home. But that doesn't work. No, no, it doesn't work for two reasons. One, culturally, in this country, people demand it go to office. We don't have a lot of, there are some companies offer flexibility. But the second, very important fact that people sometimes they don't know about, the number of employees that you employ in commercial sector in offices, it links to your size. What labor offices they do, they come and actually measure or can the number of seats and they give you quota. For example, I have 100 people in my team. Tomorrow if we change our strategy to go 150, I cannot get them visa. So I need to get a bigger space. And that is I think a key contributor to high demand. That's interesting. I like commercial. Now he's absolutely right because we also see a change in terms of regulation about which license you can take for each office and where can you rent if you have your license here. There's been, I think there's more flexibility to where you, if you take a license from specific, what is DG or maybe DMCC or Jabel Ali, please feel free to explain. But people now have more options. So talk about where we are in terms of license times office space. So if you have activities that you are catering for mainland Dubai and UAE, you need to have the EED license, which is the way economic license. Now, there were some very good changes recently where companies didn't need to have the 51% MRRT partner. So you can have 100% ownership. However, if you have freeze on, let's say in DMCC, your band only, I would say, cares the services within that freeze on or outside of the country. For example, if you have a Jabel Ali, you know, freeze on license, you bring good import. But then you cannot operate without a DG license within the border of UAE. So you got some companies that have two licenses. What I've heard is there going to be some flexibility around some of these freeze on, maybe the partner with each other. But you know, some of the freeze on here also very specific, for example, DIFC is for banking sector because it's under different restrictions. Yes, do you have a recommendation? And you know, if you are a, you know, finance company insurance, let's say international bank, right, you need to be in DIFC, you can't really operate, let's say, for example, freeze on. So also it depends on your activity. We've got media, media city, internet city. There's many other freeze on. In terms of geography of commercial, what do you see now moving? Business space for, so where are the new CBD? I'm managing partner in CRC. We, a few years ago, we started a development company for commercial and we'll be looking for lands and opportunities for ourselves and our investors, right, to build. It's very tough to find a good land, right? The demand I've seen a lot of people, they're moving towards having another hub to answer your question specifically, Motor City, I see. And that corridor of Hesse Street and Umso came, that part of the Bay land, they've seen a lot of activities. You know, there's a few commercial building loans in Motor City. Traditionally, there was capital, there was one control tower and now there's a few others to building. So I'm guessing people want to live near where they work, so they're not commuting. You look business space, a beautiful place to work. If you're living in Arabian ranches or let's say, in Jomeric, go for a study, we'll take you an hour now, fit traffic. To just get out of business space, the traffic's very heavy. What are the profiles of buyers of commercial? Who are they? Are they in a situation? Are they individual or the corporate? The way I see it is, a lot of, as the rental prices go on up, so I give you an example, some prime business space hours, we're renting a hundred that I'm just after COVID, not as 400, 5th-derm per square feet. So if you're a company that you've got the means, you've got the cash flow, you've got the availability of funds, or even you know, you have access to finance, it's getting to a point that a bit of a bit of buy, because if you have long-term plans, a lot of companies that look at Dubai and UAE, long-term, it just doesn't make sense to pay that kind of rent. So end users, we see that they're saying enough is enough. Obviously, as the rental price is going up, the yields are becoming very attractive to you, Mr. So you're Mr. So looking at the opportunity to say, "Well, that's great." So they want to kind of capitalize on this. And you know, if you think about it as well, if you had an office floor and you rented to a good quality company, whether it's a good SME here or international fair, and they've got a five-year contract, you're almost guaranteed that rent, right? So it's also low risk, where if you have a nice villa and give it to an individual, that person can change the mind, can grow the family, it's a bit more, I would say, less risk when it comes to commercial assets. So if we brought in the conversation of commercial, we talked about warehouse retail logistics, so you also feel that there's a lot of demand for that type of. Of course, of course. You know, this is again another shift in the strategy in Dubai, warehousing and industrial land. It was quite available before. I think because of the shift and changes that happen with the new airport, I think there's a lot of those lands are being reserved now, or offered to services related to the airport, right? Which makes sense, because eventually Emmer's will move there, fly the railroad there, and that's going to be our airport, right? So obviously, the government has got a long-term vision, which I fully understand, but what also has happened is, again, we've got a shortage of industrial and the prices for industrial going. Now, what I see, because I have an office, as you see, in Charger and Abu Dhabi, a lot of the end users are customers, if they cannot find something here, they're looking at alternatives. There's a bit of a misal opportunity for Dubai, but it's good for UAE as whole, because those companies are still going to be here, but they're going to be our assistant state, Charger or Abu Dhabi. Yeah, so talk a little bit about Abu Dhabi. What's the dynamics the same of Dubai? I would have easily different. Availabilities, traditionally the buildings, commercial buildings will be managed by building managers, whether for example there's a lot of banks that have got a lot of assets or family offices that have got assets. But the prices they're also going up, right? Some of the overflow off leads that they cannot find something suitable here, they will look at alternatives, especially in industrial, the keys are, it's been a big winner. The airport there, they've got a freeze on as well, and they've even had some meetings with them. They were quite happy with the number of companies that come in there. But we were connected. We're like a hand, right? I look at UAE, the sister companies, we work together sometimes, obviously. And if somebody cannot find something in one house, they'll find it in the other house. This is good. That's what for all-- for the country, it's not a loose loses of envy at the end. Maybe in the state, if they're competing, not. But again, I look at that same family. Is there a surge on co-working space? You know, co-working space, we've seen a lot of demands before. And the business center type, they're different business centers. We had the V work style, where it kind of-- Flexible use. Flexible use. You had the good ambience there. There are a lot of, indeed, there's a lot of traditional business center, which are smaller offices and people renting for trade license purposes. But again, those occupancies are also full. It's hard to find. It's not going to affect. Like when you premium sector is full, then people look at B, B goes to C, C goes to D. And now a lot of people are moving even away to other states. Ben is clearly upset with the situation of supply and demand. I'm upset-- actually, that's the reality, I think. No, no, no, no. I'm not upset. I'm very happy. I said, you said, why am I happy? I have two hats here, as a commercial real estate entrepreneur. A deal now, it's got much more value, so we make more commission. So it's not a bad thing. One deal before we make in $10,000 is 4x now, 5x, $50,000. But I look at Tobias home now. And I want to participate in a success long-term success of the way. And as someone who has a kind of overview of the market, I like, we have people that kind of day to day, we have our hand on the poles of the market. I think lack of supply with hurt businesses. So there's so much they can afford. And again, the government can come up with some initiatives. They can say, look, if you're a small business, like in U.S., a lot of big companies, like Amazon, they start it from a house, a garage. They can kind of provision. If you live in Dubai and you've got a very small company, you can use your home as a jewelry. That just kind of ease some of that pressure. But my worry is the price is going up. Look, the prices are-- it's going double both sales and leasing over the last two years. Two years, only. Yes. The question comes here. A lot of investors now-- maybe they are a little bit worried about residential. So can we say that commercial can be a good diversifier, like Amazon residential investor? I can shift now to commercial. Is that something you recommend? A lot of professional investors, they already diversify in commercial. A lot of REITs, a lot of funds, they just don't buy only residential. Some of them, they've got different mandates. They've got some residential mandates, some commercial. It is-- at the moment, I don't see the market prices going down unless we have some-- some events, kind of forced measure, event, or some event like COVID that we don't foresee. Because of the lack of supply, the price is going up. The supply-- there are some developers to just give you a bit of a market inside that they've come to the market. We've seen likes of omniats and capital one and redics. And those guys, they've come to the market now. They're building buildings of their selling off plan. But remember, it takes two, three years to build those. So the handover of those units also, three years away. Especially if you're building a high riser, it's five years. So yes, it would ease, but I don't know if we can catch up. Maybe we have to have some of the integration from government. But why then do hesitation from developers to do it? Because if you look at the proportion, if the data is so obvious, and this is a-- it is risking their sales ability, why does the hesitation there? Is it because of the use of the land? No, because-- so two to three years ago, when we had a surge in residential market, obviously, office prices at that time, they were not making sense. So we, like for example, we had transactions in JLT at 400 Lumpers Square feet. The developer looked at it, so if I want to build a building after buying the land, four years to build it. But now the same unit is 1,500. Yeah. It makes sense now. Now it makes sense. So the developer is a business. So at that time, it didn't make sense. But now that it makes sense, guess what? Everyone's looking for land? I know that. Not land. The land is a big issue. We need maybe rezone's out of the land. We need to have a bit of a-- Where? What's your area of the buy? Look, they've done some initiatives. For example, from Trade Center and above, to Sapphire, recently, it was GCC freehold. What does that mean? If you're from GCC, you get a title for the land. You can build a building. But you own the whole building. So now if you pay, I think, 30% valuation of the asset is freehold. You had a few developers like Danube, and Omniath. So the Omniath recently launched two beautiful projects. Like they were going to be landmarks. One of them is so loud. One of them is still some availability, lumena. And that was not-- that was because of the government's new policy, which I really like. There is availability of land. Let's be honest. Shake side-road, both side of Shake side-road. There's a lot of low-rise building. They could all be high-rise. So those changes-- I mean-- That's fascinating. I hope there's a vision. I hope there's some strategy to it. No, we see a lot of people actually with this low-rise coming now. And they want to go freehold and high-rise. So wherever there is demand, this is Dubai, I think. Dubai is a business city. Wherever there is a demand, we will see. Sure. So if that is-- Then the question is the decision timing. The timing is now. All right. That's my message. But to be honest, we get a lot of leads. Like, if you look at-- I have the largest commercial team in Dubai, Abu Dhabi, and Sharjah. We've probably got most of them with listings and transactions. We're not closing as much because there's no options. So that's the challenge in the market. Great. I was really looking forward to hear about what's happening in the commercial space. Obviously, very promising. A lot of opportunities. Developers, let's build more commercial. Let's build. And investors watch the office market is under supply. So there's so much of opportunities. No, the demand goes high. The price is good. And then, Cobbett. Thank you so much. Thank you, Van. Thank you so much. Thank you. Well, thank you so much, Valle. Thank you. Thank you.