Problem with commercial real estate in Dubai

AL SALAM TECOM TOWER Pictures, Images and Photos Dubai is known for intriguing skyscrapers. The towers and structures in Dubai look great and more are being built as we speak. However, there is a problem in the commercial real estate market in Dubai. The way this market is run makes for an over 40% vacancy rate in office space and this number is only going up.

When you buy a residential condo unit in North America for example, it is your apartment. You only own that unit and perhaps a parking spot and the common areas of the building are shared between all the tenants. You can live in this unit or rent it out and have it as an investment. Office towers in North America do not run like this at all. Typically one company will own the office building and lease out the units to multiple tenants. This is a good system that works very well in commercial real estate.

In Dubai however, they have chosen to go with a system similar to the residential condo model for office towers. The only difference is that instead of one unit, an investor will own one floor. For companies that require multiple floors to fit their staff and office space needs, this is a complete nightmare. Each floor has a different landlord and usually no landlord has control over the building. Using this system for commercial real estate has proven to be a pathetic model.

Although emerging markets often try to differentiate from the West and Western systems, they should not just do it for the sake of having their own identity. Dubai could have easily used the Western system for commercial real estate which has proven to work better than any other. By not using what works they made a mistake. This is a good lesson in business that you should always learn from others mistakes and successes. Dubai is now faced with a big mess that will be difficult to untangle. The worst part is that this is a problem that could’ve easily been avoided by simply following the established model for commercial real estate.