Commercial Real Estate

Why Commercial Is Under the Radar

Ask ten overseas investors what they own in Dubai and nine will say an apartment. It is the default, the thing the marketing points at, the ticket size that feels comfortable. Commercial real estate, the offices, the warehouses, the retail units that corporate Dubai actually runs on, sits right next to it and barely gets a look.

That is the opportunity, and it is worth stating plainly. Grade-A offices in Dubai gross around 7% to 9%, and quality logistics and warehousing around 8% to 10% net, on figures from Cavendish Maxwell. Set that against the residential picture from the same market: apartments average 7.0% to 7.2% gross across the city, and prime residential sits lower at 5.5% to 6.5%. So the best commercial segments sit at or above the residential apartment yield, and well above prime residential, on income you can actually contract for years at a time.

This guide makes the commercial case the way I would make it to a client across a table: honestly. The yields are real and often higher. The leases are longer and the tenants stickier. The office market is genuinely tight. And there are real costs to weigh, a 5% VAT residential escapes, bigger cheques, longer voids and thinner liquidity, that get a full chapter of their own. Read it as a thesis on a segment most people ignore, not a push to abandon the apartment you understand.

What Each Segment Yields

Commercial is not one market, it is several, and the yields differ by segment. Two numbers are solid enough to lead with, and both come from Cavendish Maxwell: Grade-A offices at roughly 7% to 9% gross, and quality logistics at roughly 8% to 10% net.

Around those anchors sit wider ranges that circulate in the market: offices from about 6% to 10% gross across Grade A and B, retail from about 7% to 12% depending on prime versus secondary pitch, and industrial from about 8% to 12%. Treat these as market broker estimates, not research-house figures. They are useful for orientation, but the numbers I would underwrite a deal on are the Cavendish Maxwell anchors and the specific rent roll in front of me, not a blog range.

The comparison that matters is the last column. Residential apartments average 7.0% to 7.2% gross city-wide, prime residential runs lower at 5.5% to 6.5%, and the highest-yielding residential communities reach 7.5% to 9%. Against that, Grade-A offices and quality logistics sit at or above the mainstream apartment yield, and the logistics net number is doing so after costs, not before them.

What the Gap Looks Like in Cash

A percentage point or two of yield sounds abstract. Put the same capital into each and the difference shows up as cash, every year, before you have touched capital growth.

Here is a deliberately simple illustration. Take AED 5,000,000 of capital. At a residential apartment yield of 7% it produces AED 350,000 of gross rent a year. At a Grade-A office yield of 8% it produces AED 400,000, and at a logistics net yield of 9% it produces AED 450,000. That is a gap of 50,000 to 100,000 dirhams a year on the same money, and the commercial income is contracted for longer and escalating on top. This is illustrative, the assumptions are shown, and it deliberately ignores the 5% VAT, the larger voids and the transaction costs that the later chapters put back in. The shape of it, though, is the whole reason to look.

Notice the honesty built into the table. The residential and office numbers are gross, the logistics number is net, so they are not strictly like for like, and the whole thing is before the costs that genuinely narrow the gap. I show it this way on purpose. The point is not that commercial is a free lunch, it is that the starting income is higher, and whether it stays higher after costs is exactly what the rest of this guide helps you work out.

A Genuine Squeeze

The office thesis is not a story, it is a supply-demand squeeze you can measure. Across the prime districts, Grade-A space is close to full and rents have compounded double digits.

Knight Frank put average office lease rates up 9.1% across key submarkets in the second half of 2024, with DIFC running at roughly 100% occupancy and Grade-A space on Sheikh Zayed Road at 95.4%. CBRE measured Grade-A rents up 14% year on year in early 2024, with the hottest submarkets far higher. Take-up of new office space reached 1.28 million square feet in 2024, up 64% on the year before. This is not a soft market reaching for tenants, it is a tight one turning them away.

What is driving it is business formation. CBRE counted more than 24,000 new business registrations in the first half of 2024 alone, each one eventually needing space. The supply response is coming, a prime pipeline of around 8.2 million square feet to 2028, but that starts from a low base and takes years to deliver. And for all the run-up, Knight Frank notes prime DIFC rents are still roughly 50% below their 2009 peak, which is the bull's argument that there is room to run, and the honest reminder that this segment has corrected hard before.

Where the Demand Comes From

A tight market is only interesting if you understand what is driving the demand and how fast the supply can answer it. On both, the office story holds up.

The demand is broad-based, not one sector's bubble. Knight Frank's read of 2024 take-up puts business services at 23%, real estate at 23% and banking and finance at 20% of new office demand, so no single industry is holding the market up alone. Underneath it is the raw business-formation engine: more than 24,000 new registrations in the first half of 2024, each one eventually needing a desk, a floor or a headquarters.

The supply answer is real but slow. Knight Frank counts a prime pipeline of around 8.2 million square feet to 2028, which is 86% more than the 4.4 million square feet delivered across 2021 to 2024. That sounds like a lot until you remember it starts from a near-full base and takes years to complete, fit out and lease. In the meantime the submarket rent numbers tell you how hard the squeeze bit: Trade Centre District up 96% and Business Bay up 46% in H2 2024 alone. Those are not typos, they are what happens when demand meets almost no available Grade-A space.

The Segment Nobody Talks About

If offices are the headline, logistics is the story underneath it. On Cavendish Maxwell's numbers, warehousing is both the highest-yielding mainstream segment, around 8% to 10% net, and the one growing rents fastest.

Warehouse rents rose 16.8% year on year in the third quarter of 2025, and across the full year average rents were up 17.6%, taking total warehouse rental values above AED 3.2 billion. The growth was broad, not a single hot pocket: Jebel Ali up 22.1%, Dubai Industrial City up 18.9%, Dubai Investments Park up 18.7%. This is the tailwind of e-commerce, re-export trade and near-full occupancy meeting a limited supply of quality, well-specified space.

Retail, for balance, grew more modestly: average retail rents rose 7.1% over the year, closer to the residential pace, with the strength concentrated in prime, well-let locations rather than spread across secondary pitch. Logistics is where the segment story is genuinely different, higher net yield and faster rent growth, and it is the core of why commercial deserves a second look.

Where Retail Fits the Picture

Retail sits between the office squeeze and the logistics surge, and it behaves differently from both. It grew, but modestly, and the strength was concentrated rather than broad.

Average retail rents rose 7.1% over 2025 on Cavendish Maxwell's numbers, a pace much closer to residential than to the double-digit office and warehouse moves. The nuance matters more than the headline: the demand clung to prime, well-let locations, the malls and community centres with footfall, rather than spreading evenly across secondary pitch. Retail is the segment where the location premium is widest, and where getting the pitch wrong hurts most.

For an investor, that shapes how you treat retail. It is not the income engine that logistics is, and it does not carry the near-guaranteed occupancy the office squeeze created. What it offers is a prime-location play, where a well-let unit in the right centre can be a durable income asset, and a secondary unit in the wrong one can sit empty while the average rises around it. Retail rewards selectivity more than any other commercial segment. Buy the pitch, not the sector.

Corporate Income, Contracted

The residential tenancy is a 12-month Ejari contract that renews, or doesn't, every year. The commercial lease is a different instrument, and every difference favours the stability of your income.

Commercial terms run multi-year, commonly two to five years or more, so the income is contracted for longer and you re-let less often. Leases carry a built-in escalator, commonly 5% to 10% a year or linked to CPI, so the rent grows on contract without renegotiating a new tenancy. The tenant typically takes a 1 to 6 month rent-free period to fit out the space, and that sunk fit-out cost is exactly what makes them stay. And in most cases the tenant carries the service charge, with the chiller split depending on whether the lease is gross or net.

Put those together and you get the investor argument in one line: longer contracted income, growing on a built-in escalator, from a tenant who has sunk capital into staying and who carries the running costs. That is a materially stickier cash flow than a residential tenant on a rolling annual lease. The honest flip side, and it gets its own chapter, is that the same stickiness means a longer, harder void when a corporate tenant does eventually leave.

The One Clause That Changes Your Yield

Before you compare two commercial yields, check whether they are quoted on the same lease basis. Gross and net leases put the running costs in different places, and that changes what actually lands in your pocket.

Under a gross lease, the rent the tenant pays includes the service charge and the chiller, so the headline rent looks higher but you, the owner, carry those operating costs out of it. Under a net lease, the tenant pays a base rent plus the service charge, per square foot to the owners' association, plus their own chiller consumption metered separately through a provider like Empower or DEWA. The base rent looks lower, but far more of it is genuinely yours. Two assets can advertise very different rents and deliver almost the same net income, or the same rent and deliver very different income, purely on this one distinction.

The practical rule is simple. When someone quotes you a commercial yield, your first question is not how much, it is on what basis, gross or net, and what does the tenant actually carry. A net lease with a tenant-borne service charge and chiller insulates your income from rising operating costs, which is exactly why the logistics net yields in Chapter Four are as robust as they are. Compare like for like, or you are not comparing at all.

5% VAT, Stated Plainly

If you take one number from this guide, take this one. The sale and the lease of commercial property in the UAE are standard-rated at 5% VAT. Residential is not. This is a real cost, and it is the biggest structural difference between commercial and the residential case.

Here is the position precisely, on the Federal Tax Authority's interpretation as analysed by Pinsent Masons. Commercial property: 5% VAT on both the sale and the lease. Residential property: zero-rated on the first supply within three years of completion, then exempt thereafter, and bare land is exempt. So where a residential buyer pays no VAT on the purchase and a residential tenant pays no VAT on the rent, a commercial buyer and a commercial tenant both do.

What it means in practice depends on who you are. On a secondary-market commercial purchase, the buyer may have to pay the 5% VAT directly to the Federal Tax Authority through EmaraTax before the title transfers at the Land Department. A VAT-registered investor can generally recover that input VAT, so for a business buyer it is often a cash-flow timing issue rather than a permanent cost. But for a non-registered private buyer, the 5% is a genuine added cost, on the price and on the rent. Model it in from the start, and take VAT advice specific to your structure before you commit, because whether you register changes the whole calculation.

What Commercial Costs You

A higher yield is never free. Commercial buys you stronger, longer income, and it charges you for it in ways the residential market does not. Here are the trade-offs, stated as plainly as the advantages.

Higher entry cost and larger lots. A whole floor, a warehouse or a retail block is a bigger absolute ticket than a one-bed apartment. That raises the minimum cheque and concentrates your risk in fewer, larger assets rather than spreading it across several small ones.

Longer voids when a tenant leaves. The same stickiness that lengthens your income cuts both ways. Re-letting a vacated office or warehouse to a new corporate takes longer than re-letting an apartment, because the tenant is specialised, the space is large and the fit-out has to be negotiated. A void here is measured in months, not weeks.

Thinner liquidity and harder resale. The commercial buyer pool is smaller than the mass residential market, so an exit can be slower and more price-sensitive, especially in a downturn. Remember prime DIFC rents are still around 50% below their 2009 peak: that is how hard commercial can correct, and how long it can take to come back.

Tougher financing and the 5% VAT. Commercial mortgages in the UAE typically carry lower loan-to-value, higher rates and shorter tenors than residential lending, with fewer lenders taking part, so you bring more equity up front. Treat that as market practice to verify with a lender, not a fixed rule. And on top of it all sits the 5% VAT from the last chapter, which residential escapes.

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