Dubai is to expand its Smart Rental Index to include commercial and industrial properties, a move that could serve as a catalyst for landlords to improve poor maintenance standards in neglected buildings, industry experts said.
Majid Al Marri, CEO of real estate registration and services at Dubai Land Department, told AGBI at the launch of the residential rental index that the commercial component is expected to roll out in the first quarter of 2025, with industrial properties to follow.
The real estate research team at the consultancy company ValuStrat in Dubai said the Dubai Commercial Index was likely to offer benchmarks on a per-building or community basis.
“It will enable landlords to request individual property valuations to account for upgrades while rental caps remain in place. This enhanced precision will help landlords and investors benchmark properties more accurately for rent reviews, fostering greater market transparency and confidence,” ValuStrat said.
Ashish Panjabi, chief operating officer of the electronics retailer Jacky’s in Dubai, said the new index might compel “lazy landlords” to reinvest rental income into maintaining their commercial buildings.
“We’ve had offices where elevators don’t work, cleaning isn’t done, and landlords don’t care, because they’re earning the rent and taking advantage of where the [old] index can support them,” he said.
Mansoor Ahmed, an independent adviser on the sector, said the index could enhance transparency and pricing accuracy in the commercial sector, where “notable” rental discrepancies are common even within the same location.
“It will differentiate high-quality developments from lower-quality buildings and those requiring significant maintenance,” he said.
Retail rents, however, may require a more tailored approach.
It is not yet clear if the index will include malls, which have not been under the purview of the Real Estate Regulatory Authority so far.
“For roadside shops in older areas, the index could help standardise rents, but for high-footfall tourist areas and malls, it will be far more complex,” Ahmed said, pointing to the challenge of factoring in the dynamic nature of retail operations, market changes, and the mutual interests of landlords and tenants.
“A flat rent doesn’t reflect the potential decline or growth in foot traffic, which can make the agreement less equitable over time,” he said.
The index will also expand to cover industrial properties, including warehouses, which Panjabi described as “shockingly poorly maintained” by some landlords, with the aftermath of the record-breaking rainfall last April exposing this.
“We can’t be responsible for fixing pipes and things that should be the landlord’s responsibility [but] we end up having to because it’s our stock at risk.”
Strong demand
Panjabi said finding alternative warehouse space is a challenge because of strong demand.
“There is undue advantage taken in these situations,” he said. “The rating system should penalise landlords who fail to meet basic standards.”
Ahmed said that a sophisticated industrial index would need to account for unit types, accessibility, logistics and trade incentives to attract investors and maintain Dubai’s competitive edge.
While the new indexes aim to regulate the market, Panjabi said landlords of well-maintained buildings should be rewarded by being allowed to charge more.
“That’s how market economies work,” he said.
However, Panjabi said, “in terms of greed, I think any guideline like this is just that, a guideline”.
For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values -November 2024
