Pillar
Commercial
Commercial property in Dubai: offices, shops and warehouses
Commercial property is not residential on a larger scale. VAT applies, leases run for years, the tenant pays for the fit-out and a void is counted in months. It pays more because it exposes you to more.
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5% VAT on the sale and rent of a commercial property
The short answer
Commercial property suits an investor who has cash in reserve and thinks in terms of five to ten years. It offers long leases and a higher gross yield in exchange for 5% VAT to manage, voids counted in months and capital tied up in an asset that is hard to sell quickly. It is rarely the right place for a first investment made from abroad.
Commercial property suits a different profile from residential property: better capitalised, more patient, and usually already the owner of a property in Dubai. Leases are longer, tenants fewer, and a void costs far more. It is one part of investing in Dubai.
The contrast
What separates commercial from residential
Eight differences of kind, not of degree. Each one changes the calculation, and the first even changes the advertised price.
| Criterion | Residential | Commercial |
|---|---|---|
| VAT on the sale and the rent | Outside the scope, except the first sale of a new home | 5%, recoverable by a VAT-registered tenant |
| Usual lease length | One year, renewed | Three to five years, sometimes longer |
| Entry ticket | Accessible from a studio upwards | Higher, and units are rarely divisible |
| Condition at handover | Finished, with kitchen and storage fitted | Often shell and core, fit-out still to do |
| Void between two tenants | A few weeks | Several months, sometimes more than a year |
| Tenant profile | Expatriate individual | A company, with the lease tied to its trade licence |
| Costs during a void | Service charges | Service charges, higher per square foot |
| Yield profile | Lower, steadier | Higher, more volatile |
Scroll the table sideways to see every column.
The costliest line is the first. VAT at 5% applies to the sale and lease of a commercial property, whereas residential property is very largely excluded. For a VAT-registered tenant, it is neutral: they recover it. For an exempt firm or a business that is not registered, it is a straight extra cost that gets negotiated off the rent. And on the landlord’s side, commercial rental income above the registration threshold means registering and filing returns, whether or not you are an individual.
The assets
Five markets, five logics
| Asset | Typical tenant | What sets the price | The risk to watch |
|---|---|---|---|
| Office in a tower | Service company, professional firm, regional headquarters | The address, the licence activities permitted, parking, the existing fit-out | Abundant new supply and the length of the tenant’s fit-out works |
| Ground-floor retail | Restaurant, pharmacy, salon, neighbourhood convenience store | Real footfall, counted on site, not advertised footfall | Rapid turnover of independent retailers |
| Unit in a shopping mall | National or international brand | The mall operator, its occupancy rate, its rent policy | Very rarely sold freehold to an individual |
| Warehouse and light-industrial unit | Logistics, distribution, workshop, storage | Clear height, loading docks, power supply, access for heavy goods vehicles | Land often held on a zone lease rather than freehold |
| Office in a free zone | A company licensed by that free zone | The zone itself, which determines who can be a tenant | A right granted by the zone authority, with its own transfer rules |
Scroll the table sideways to see every column.
First, we judge ground-floor retail by counting the footfall ourselves, at the hours the target business trades, rather than relying on a footfall study. A corner unit on a walkway that is busy in the evening has nothing in common with the unit next door facing a car park.
Second, warehouses are almost always found in a free zone or an industrial zone, where the land belongs to the zone authority. What you buy is then a fixed-term right, transferable subject to approval, not freehold ownership recorded in the land register. The ownership regimes are set out in our guide to investing in Dubai.
The lease
What to negotiate in the lease
The rent-free period.
A tenant who pays for their own fit-out asks for several months rent-free. That is fair, and it is the price of a long occupancy, but it cuts the first year’s yield by an amount that never appears in the marketing rent schedule.
The landlord’s fit-out contribution.
It is negotiated as an amount per square foot, or as the landlord taking on specific technical packages. It should be spread over the term of the lease and included in the yield calculation, not filed under sundry costs.
Rent review and indexation.
A multi-year lease includes a rent review clause. Its wording, not the headline rate, decides the real income in years three to five. A badly drafted cap cancels out the benefit of the long term.
The link to the tenant’s licence.
The registered lease provides the address on the tenant’s trade licence. That is what keeps them in the premises — and it is also why checking their licence, their activity and how long they have been trading is essential before you sign.
The security.
Banker’s cheques, a bank guarantee, a deposit: the form you agree decides what you recover on the day the tenant stops trading. It is the line of the lease that non-resident investors most often regret not having negotiated.
The real calculation
We start from the advertised rent, then deduct the rent-free period spread over the term of the lease, the landlord’s fit-out contribution, and twelve months of service charges for the next void. The result is the asset’s real yield. It often remains higher than residential: it is simply less spectacular than the figure in the brochure.
Run both calculations for your asset
The entry costs of a commercial property follow the same DLD fee schedule as residential; the yield is worked out through the same cascade, with the rent-free period and fit-out contribution added.
Frequently asked questions
Questions investors ask before a commercial purchase
Can a foreigner buy an office freehold in Dubai?
Yes, in the same designated areas as residential property: an office in a tower within a freehold area can be bought outright, with a title deed issued by the Dubai Land Department. In a free zone, by contrast, the land belongs to the zone authority and what changes hands is a fixed-term right, with its own rules for approving the buyer. The distinction is decisive and must be checked before any offer.
Does 5% VAT really apply to commercial property?
Yes. Unlike residential property, the sale and lease of a commercial property fall within the scope of VAT at 5%. A VAT-registered tenant recovers it, so it costs them nothing; a tenant who is not registered bears it, and that weighs on the rent they will accept. On the landlord’s side, commercial rental income above the mandatory registration threshold means registering and filing returns, including for an individual. Confirm this against your own situation.
Is the yield higher than on residential property?
Gross yield is usually higher, and that is logical: it pays for longer voids, a less liquid asset and risk concentrated on a single tenant. Net yield depends above all on two things residential property does not have: the landlord’s contribution to the fit-out and the length of the rent-free period granted at the start. A five-year lease with six months rent-free does not earn what the rent schedule suggests.
What does shell and core mean?
It is space handed over with the structure, the facades and the services brought to the unit, but without partitions, false ceilings, finished floors or air-conditioning distribution. The fit-out is carried out by the tenant, to plans approved by the building manager and the authorities. It is expensive and takes months, which is why a tenant who has paid for it stays a long time: it is the best guarantee of occupancy an office landlord has.
Do I need a company to buy commercial premises?
Not necessarily. An individual can own a commercial property and lease it out, and income from real estate held privately stays, in practice, outside the scope of corporate tax. VAT makes no such distinction. Once several assets, several partners or structured financing come into play, a company regains the advantage: we compare the structures on our company formation page.
How long does it take to re-let a vacant office?
Much longer than an apartment. You have to find a company whose activity and licence suit the building, negotiate a term, grant a rent-free period and give the tenant time to complete their works. An investor who thinks in weeks, as with residential property, underestimates the cash-flow gap. That is precisely what the higher yield pays for.
Read next
Comparison
Residential property in Dubai
Structure
Setting up a company in Dubai
Tax
UAE corporate tax
Tax
VAT in the UAE
Operations
Property management in Dubai
Independent advice
Have a commercial lease reviewed before you sign
Send us the draft lease, the floor area and the asking rent. We review the rent-free period, the fit-out contribution, the rent review clause and the security, and give you the real yield over the term.