Dubai has been hailed as the regional start-up hub due to its enterprising business ecosystem, proactive governance and most favoured business rankings in the region, according to a new report.
The Start-Up Environment in Dubai report by the property consultancy Core UAE, an associate of Savills, further stated that the combined efforts of the UAE government and private players were being invested to turn the country into a global entrepreneurship hub.
However, the challenges faced by start-ups in the city’s dynamic office market, including miscalculating real estate requirements along development stages, may be penalised through higher rentals, probable loss of talent, restricted connectivity and limited expansion/contraction opportunities – all potentially leading to creative, innovative, tech-savvy start-ups being priced out of Dubai.
Presenting the findings of the report, David Godchaux, CEO at Core UAE, advises Dubai-based start-up founders how to strategically align their growth stages, workplace strategies and real estate requirements to optimise footprint and cost, shifting the odds of successfully growing their business in Dubai in their favour.
The Core UAE researchers explain that once a start-up has progressed from initial stages, when working out of co-working spaces, incubators, and business centres or serviced offices, to becoming a profitable business, the founder may look for relevant office options in secondary locations/existing free zones which offer flexibility to expand within the same premise.
“Assess the required licensing structure depending on the business type and choose onshore or freezones best suited for operations,” advises David Godchaux, CEO at Core UAE.
“Make sure not to miscalculate real estate requirements along development stages – choosing smaller or larger than required office spaces resulting in either sub-par office set-up hindering growth and expansion or penalised by high rentals costs.
“Also, align business growth with real estate requirements. Business centres or serviced offices may be a preferred choice for start-ups/SMEs who have progressed from their concept stage but still need flexibility in operations without substantially adding on real estate cost. Opting for suburban locations lacking public access and social infrastructure might lead to possible difficulties in attracting/retaining talent.
“A start-up’s ability to negotiate terms permitting expansion and contraction of space will allow it to strategically plan their resource requirements and gain the competitive edge needed to own market share and grow to full potential.”
The researchers analysed real estate costs across more than twenty free zones housed in Dubai by benchmarking a typical small scale start-up office unit of 2,000 sqft. According to their data, capital requirements vary in each free zone, with Dubai International Financial Centre (DIFC) having the highest capital requirement, attributed to its financial and legal operations.
Industrial and logistics free zones such as JAFZA (Jebel Ali Free zone), Dubai Flower Centre, and Dubai South typically have medium to high base capital requirements attributed to higher infrastructure costs, activity type and licence obtained.
In other free zones such as DAFZA (Dubai Airport Free zone), D3 (Dubai Design District), DMCC (Dubai Multi Commodities Centre), DSO (Dubai Silicon Oasis), DIC (Dubai Internet City), DMC (Dubai Media City), Knowledge Village, DIAC (Dubai International Academic City), Studio City, IMPZ (International Media Production Zone) and DHCC (Dubai Health Care City), the requirements are relatively easier to meet, but still subject to activity and ownership.
For broadcasting firms and hospitals, the capital requirements are much higher even though these may be located in DMC, IMPZ or DHCC. The Core UAE team recommends Studio City, DMC, and IMPZ, for creative firms, while for IT related companies DIC, DSO, and Dubai Outsource Zone would be a good option, as well as Knowledge Village and DIAC for education related fims.
In addition to base capital requirements, lack of smaller yet scalable office options, public access for employees and supporting social infrastructure, are among the major issues faced by start-ups based in the sub-urban free zones located away from Sheikh Zayed Road.
The Core UAE data suggest that the UAE’s typically cost conscious start-up founders prefer to set up their businesses in Dubai Multi Commodities Centre (DMCC) and Dubai Silicon Oasis (DSO).
“Developers/landlords in Dubai are increasingly addressing the demand from a growing SME market segment, in addition to maintaining a portfolio suitable for large corporates,” says Godchaux. “This trend is gaining traction especially in secondary onshore locations and technology/commodity-themed free zones such as Business Bay and JLT(DMCC), with landlords subdividing floor plates and offering partially fitted out options for faster absorption of stock.
“These sub-markets continue to be the preferred choice for cost-conscious start-ups looking to set up initial bases as they offer a wide variety of products with competitive entry rents and overall lease terms coupled with good access to public transport and social infrastructure.
“DSO also offers the offices at one of the lowest entry levels in Dubai and is well placed off Sheikh Mohammed Bin Zayed Road, however, the area is not yet connected to the metro system. With prices marginally softening in these locations, we expect these trends to continue for the remainder of 2016. Furthermore, the real estate advice to a start-up founder is largely driven by the sector and growth stage of the start-up as conventional real estate strategies may not work for tech start-ups due to their inherent nature of operations.
“Through business analysis and customisation of lease terms, start-ups can be advised to strategically align growth stages, workplace strategies and real estate requirements to optimise footprint and cost. And by discussing it with real estate advisors, start-ups can understand how this translates into an official real estate strategy.”
The report further suggests that if the start-up establishes itself, a shift to prime locations, to enhance brand image, attract talent, provide just in time service to key clients, may be financially viable.
In addition, for businesses which need to be in city markets and malls, free zones are not the preferred option. “A start-up may choose to shift to a prime location or upgrade within the same geographical sub-market, depending upon its existing license and free zone activity limitations,” explains Godchaux. “However, this upgrade may be financially viable only if a start-up has reached an established financial state, has a growing employee base and is capable of sustaining the upward cost gradient in rent.
“The key factors to be keep in mind while choosing a prime office would be the proximity to clients and vendors and suppliers. if required by the business, flexibility to expand within the premise, premium property management and availability of ample parking.”
Follow us on
