Due to the pandemic-induced economic slowdown, the commercial property market in Abu Dhabi remains favorable as average rents fell in Q1 2021. According to the latest report from the leading consultancy firm, Knight Frank, the trends of consolidation of space and flight to quality are likely to continue. Occupiers are looking to take advantage of weaker market conditions to upgrade their occupational space, whilst also being mindful of increasing their commercial space.
Investing in commercial property can be quite confusing, especially for first-timers. Therefore, we have decided to guide you through the different types and features of commercial real estate in Abu Dhabi, as well as the specific laws regarding properties and the current pricing offers.
Implications of VAT for Commercial Property in the UAE
Firstly, it is essential to know about the VAT registration, which is 5% of the property value, for buying or renting commercial property, which came into effect from January 2018. There is no distinction between tenants and owners when it comes to VAT, the same rule applies to both. The seller must issue a tax invoice on top of the listed purchase price when a business or individual is investing in UAE commercial properties. The VAT invoice is issued on top of the bill for the annual lease payment. However, if you sell the property with a tenant already occupying it and there are no plans for the tenant to leave, as long as both the seller and buyer(s) are registered for VAT, then you are exempted from this regulation.
Furthermore, a seller must register for VAT if he is over the required tax threshold of AED 375,000 (USD 103,000) per annum. It is worth noting that not only companies are liable to register for VAT. The requirement applies to individuals who own the space as well. While both a purchaser and seller have to register with the VAT system, the buyer has to initiate the declaration and provide the required information on the Federal Tax Authority’s e-services portal.
Types of Commercial Properties in Abu Dhabi
In 2019, an Abu Dhabi government initiative was launched to allow expats to own freehold property in designated zones across the city, which means that foreign owners have the full entitlement to put the land on a mortgage, sell it and inherit it. The range of commercial real estate in Abu Dhabi is expansive as the emirate offers properties for every client – from furnished offices to purpose-built factories. We will now review the most popular types of commercial real estate in Abu Dhabi.
Offices, Business Centers and Co-Working Spaces
Foreign investors can either own a property or rent an office in the UAE for the purpose of setting up a company in the country. If you are managing several businesses, renting office spaces or a business center may be more convenient and ecological. It is worth noting that a company working in Abu Dhabi or the rest of the UAE must have a physical location in the form of an office. Upon choosing a suitable property, owners will have to pay a fee to take it off the market until the lease papers are finalized.
When signing a lease for commercial property, make sure that all terms and conditions are laid down in the agreement. For instance, if the option of commercial property involves some particular changes (such as building and installation of cubicles and so on) it must be stated in the contract.
Co-working spaces are in particular demand due to flexibility and budget-friendly prices. These units are especially popular among new start-ups and entrepreneurs.
Offices for purchase are widely available in Abu Dhabi. One can buy a space of 433 sq. ft. for AED 500,000 (USD 137,000), located in the sought-after address of Reem Island, which features central AC and 24-hour maintenance services.