Gearing Up for Business: Key Factors to Consider When Purchasing an Office in Dubai
Are you planning to start a business in the city of dreams? If yes, then you need to spend some time searching for the right office space that will pave the way for your enterprise’s success. There are a lot of factors at play in the decision-making process, and these are what we are going to explore in this blog.
With more than 6 years’ experience in the commercial property market, I have valuable knowledge and expertise that will help you purchase and own a commercial space in Dubai with ease. I will share with you below some of the key points that you need to take into account.
Buying as an Investor or an End User
Commercial space investment comes in two different scenarios—first, you’re the investor and second, you’re the end user.
It is mandatory for investors to commit a certain amount to earn a financial return. They purchase property for several reasons, one of which is to have an ROI on an asset. Any veteran investor knows that expansion of business profits into more than just a savings account is crucial. While being a real estate investor is not easy, it is one of the most effective ways to grow wealth on a long-term basis. Thus, the advantages are completely rewarding.
When you embark on real estate investment, your core mission is to put the money you invested money to work and watch it grow over time to secure your future. It is imperative to have ample profit or return to ensure that the risk you take is covered. The great thing about investing in a commercial office in Dubai is that it is completely worthwhile. The rent is not only paid on a yearly basis, but you can also take advantage of long-term leases on commercial. That means you can lock in a rental contract from three to ten years with PDCs paid upfront by the lessor or end user. Thus, you can expect a smooth income generator and a long-term ROI.
On the other hand, an end user pertains to the consumer of a finished product. When it comes to real estate, this refers to the organisation or person occupying the space. As a business owner, one of the most crucial decisions that you need to make is whether to rent or purchase an office. Say, for instance, you decided to purchase, it’s a must to search for the perfect spot for your business.
It’s also essential to have an understanding of factors such as feasibility, market forecast, staff satisfaction, marketing, turnover, and many more. If your business has been up and running for a while, the entire process will be a bit more smooth sailing for you. However, if you are working on a start-up enterprise, you need to have funds to invest in your business and all the office purchases.
In a recent finance study conducted by the Dubai SME, 80 percent of small business enterprises had to utilize their personal savings and/or equity as a main source of finance to establish a business in the region. Moreover, businesses mainly tend to reinvest profits than resort to bank finance for the expansion of the company’s operations. The study also found that only 23 percent of SMEs had financial access over the last five years compared to 25 percent of companies in the MENA region, 45 percent in South Asia, and 57 percent in Eastern Europe. These figures show the personal cost borne by SME owners.
More importantly, it’s imperative to plan for potential growth. It does not make any sense to move into a small office space only to realise in a year’s time that you need more room, and eventually want to upgrade to a bigger office. Other factors to consider include retail facilities within walking distance, parking facilities in the building, nearby bus or metro station, convenience of the location, and many more.
Of course, you need to take into account the fact that offices can be bought as shell and core or fitted. Aside from that, it is also a must to consider the number of visas permitted, the license to operate in Dubai, and many more. In a nutshell, ensure to select a zone and office space to operate in accordingly.
Which is Better: Fitted or Shell and Core?
When you have already made the decision to buy an office space either as an investor or an end user, it’s time to decide whether you will go for a fitted or shell and core office.
‘Fitted’ and ‘fit-out’ are terms used interchangeably to describe the procedure of creating interior spaces fit for occupation. A fit-out can be classified into Category A (Cat A) and Category B (Cat B). Buying a Cat A office means the fit-out of the tenant’s space will be completed by the developer. This classification may include blinds, internal surface finishes, distribution of electrical and mechanical services, suspended ceilings, raised floors, and the list goes on.
Cat B is a more state-of-the-art fit-out and may entail special lighting installation, pantry, toilets, conference rooms, board rooms, meeting rooms, specialist facility installations, office partition installation, and final finishes. The building will also feature external building works, car parking, loading bays, basements, lift shafts, toilets, staircases, lobbies, main reception, common areas, and more.
Say, for instance, you intend to buy a shell and core office, then I would advise you to conduct research extensively. That is because you must brace yourself for approvals from the developer and government authorities to complete the fit-out in your office space.
Keep in mind that every zone has a specific fit-out guideline, which ought to be followed. Usually, this entails technical requirements, processes, information, steps, as well as safety, environment & health regulations, which have been laid out by every zoning authority in the region. Primarily, all these inclusions are designed to provide fit-out contractors, fit-out consultants, designers, tenants, and building owners with assistance in efficiently planning activities.
Moreover, the guideline is applicable to the commercial premises within the control of the zoning authority liable for undertaking the latest fit-out additions, works, and modifications. Among the scopes typically covered in every guideline include health, safety & environment regulations; Mechanical, Electrical & Plumbing (MEP); structural; and architectural & partitioning.
Shell and Core
Also referred to as base build, shell and core is a terminology that describes the scope of works of the developer. This encompasses the base building’s construction and design, while an array of other fit-out and construction works are left to be finished before the office space is occupied. The shell and core concept is said to have originated in the USA, where it was primarily applied to office skyscrapers built by developers for rent. Initially, American developers fitted out offices through the installation of floors, carpets, ceilings, AC, and lighting on the basis of abstract layout for future tenants.
However, in most cases, the actual ideas of the tenant differed from those of the developers. As a result, the money ended up getting wasted for fit-out modifications. Over time, most developers began to leave their projects at the shell and core status, thus providing tenants with the freedom to complete their own fit-out based on their own specifications. If you intend to purchase a shell and core office, it will usually consist of the cladding, structure, and base plan. However, the actual building itself comprises the main reception, fit-out of the common areas, staircases, lobbies, lift shafts, toilets, loading bays, basements, external building works, car parking, and many more.
When you’re planning to buy an office space in Dubai, keep in mind that shell and core options are the most price-sensitive, and this can be a huge factor in making the final decision. However, you also need to consider that doing the fit-out requires time, effort, and money on your part. What’s more, its completion can take around two to six months. On the other hand, while buying a ready fitted office is a simple process, one of its downsides is that you may not be able to search for the one that meets your needs and expectations.
Which is the Best License to Opt For?
Now that you have already discovered the pros and cons of a shell and core and a fitted office space, it’s time for us to discuss the process of licensing. As a commercial property consultant, it is my responsibility to know and understand the business activity of my clients. Say, for instance, they have not taken an initial approval or a trade license of a specific zone yet. When it comes to the buying process, my skills and experience will be at play to provide them with proper guidance.
Since you are planning to establish a business in the UAE, you need to understand that Dubai operates on both free zone and mainland commercial licenses.
What is a Free Zone Firm?
This pertains to an offshore firm, which is incorporated within an appointed jurisdiction of the emirate where the firm is permitted to do business outside the country or inside the same free zone. The beauty of free zone licenses is that they are fully owned by the foreign partner. What’s more, with over 20 free zones in Dubai, you can select the best set-up and trade license in a certain jurisdiction that is right for you.
Once you have finally determined the zone you wish to operate from, we can then make a purchase within that appointed zone. For instance, a Dubai Multi Commodities Centre (DMCC) license is only permitted to operate in Jumeirah Lakes Towers (JLT). Thus, we can solely buy an office space in JLT. If you have a license to operate in Dubai Silicon Oasis (DSO), then you can only buy an office in this zone. Do you now understand how it works?
On a certain occasion, I have met a client buying an office outside the designated zone because they came across a good deal. Unfortunately, he ended up paying more money in the long run, as operation in that zone was not possible at all. Thus, doing your due diligence is of the essence in making the final decision to buy an office space in Dubai.
What is a Mainland Firm?
This company pertains to an onshore company licensed by the Department of Economic Development (DED). By nature, it is structured as a Limited Liability Company (LLC) of the related emirate, which is permitted to do business in the local market and outside the country without any limitations. All mainland commercial licenses are also required to have a local service agent or a UAE national as a local partner. When it comes to shares, they are mandatory to be split to 49% for the foreign partner and 51% for the UAE national. DED licenses solely operate within specific areas in Dubai, which are classified as onshore zones. Among the examples of these are Barsha Heights, Business Bay, Dubai Marina, and more.
There you have it! Hope the information in this blog would serve as your guide in buying the perfect office space that meets your needs and budget.