First, the bad news. Here at Holborn Assets, we don’t think that the commercial property downturn we’ve seen over recent quarters in the UAE is likely to be reversed any time soon. We’re basing this on research from the experts at the UK’s Royal Institution of Chartered Surveyors (RICS), which shows that demand in the commercial property market is down again, for the ninth consecutive quarter. The biggest hits were in industrial and retail space, but demand for office rentals wasn’t far behind. And then there are more downbeat headlines as we look ahead – that overall rents are expected to drop by a further 2.7 per cent over the next year, and that investment interest in UAE property from both domestic and foreign investors is also set to continue to fall.

Rising costs

So what’s behind the poor outlook, and is the picture all doom and gloom? Well, one factor we see coming into play over the coming months is the introduction of VAT in the UAE. In a commercial property market that is already not exactly in the rudest of health, the addition of an extra tax burden into the mix is not helping landlords and investors. And we’re not alone in thinking this – here’s what Craig Plumb, head of research at JLL Mena (Middle East and North Africa) has to say: “It can’t be a positive [market influencer] so if anything it’s going to be a negative, but not a big negative. Because the markets are soft it means the owners can’t pass on the VAT to tenants. Office and retail rents should all go up by 5 per cent but that’s not possible so the owners are going to have to absorb some of that increase.”

While the UAE residential market is unaffected by the new VAT regulations that came in at the start of the year, commercial properties are, and we’re sure that it will have a dampening effect on an already poorly performing market.

A more positive outlook?

A final note of optimism though, again from the findings of the RICS report. According to the team there, the UAE property sector has shown greater resilience in comparison to its regional rivals and the RICS put this down to the relative strengths of a more diversified economy. It’s a sign that, while the commercial property sector in the UAE may not be performing well at the moment, the underlying structures of the economy are solid – and may put the UAE in a stronger position in the longer term if investors can hold their nerve.