Shell&core to coworking space strategy
Converting a large office space into a coworking offering in Dubai — both for a flip (resell) and for a hold (lease & operate) scenario.
Including suggested locations, rough numbers, assumptions, and key risks.
1. Why this strategy makes sense
Market fundamentals
The overall office market in Dubai is seeing strong rental growth, high occupancy, and constrained supply of Grade A space. For example, average city-wide office rents around Q2 2024 were ~ AED 156 per sq ft/year.
Premium business districts (e.g., DIFC, Downtown Dubai) are commanding higher rates and seeing occupancy near 98%.
The demand for flexible workspace / coworking is rising: many SMEs, start-ups, remote/hybrid teams want flexible desks, dedicated desks, private offices.
Strategic logic
Converting a large office floor/space into a coworking environment allows you to:
Increase per sq ft rental revenue compared to a traditional lease to one tenant (by segmenting into hot desks, dedicated desks, private offices, meeting rooms).
Capture value from “flexible workspace” premium and higher turnover/usage.
Create a business model that either (a) operates the coworking business (hold) or (b) sells the fully fitted coworking-ready asset at a premium (flip) to an operator or investor.
Luxury / premium positioning plays well here — you can target high end coworking clientele (corporates, creative agencies, crypto firms, family offices) willing to pay premium for location, quality, amenities.
2. Suggested locations in Dubai (for higher income)
Choosing the right location is critical – you want top business districts or emerging hubs where demand is strong, visibility is high, and you can charge premium rates.
Here are strong picks:
| Location | Why | Typical annual office rental rate (per sq ft) |
|---|---|---|
| DIFC (Dubai International Financial Centre) | Flagship financial hub, prestige location, corporates. | ~ AED 220-280/ sq ft for Grade A. |
| Downtown Dubai | Landmark area, strong demand, high rates. | ~ AED 180-240/ sq ft. |
| Business Bay | Good mix of corporates, serviced offices, large floor-plates; value relative to above districts. | ~ AED 90-140/ sq ft (depending on quality) in some sources. |
| Emerging / Value Districts (e.g., Jumeirah Lake Towers, Dubai Silicon Oasis, Deira, Motor City, JVC, Dubai South, etc.) | Lower entry cost, higher margin potential if you upscale. | e.g., Dubai Silicon Oasis ~ AED 79/sq ft, Deira ~ AED 102/sq ft. |
Focus on DIFC or Downtown if budget allows — for “luxury premium coworking”, if you want prestige.
If budget constrained or you want stronger yield, Business Bay could be a sweet spot.
3. Financial model – Hold (Operate as Coworking)
Here is a simplified model for a hold strategy (you buy or lease the large space, convert into coworking, and operate). Adjust for your real numbers.
Assumptions
Large floor-plate: e.g., 10,000 sq ft (≈ 929 sq m) in a premium building in DIFC or Business Bay.
Purchase price (or long-term lease etc) – assume you buy at e.g., AED 2,500 / sq ft (for illustration; you’d need actual current market). That would be 10,000 × AED 2,500 = AED 25,000,000.
Operating cost: fit-out + furniture + IT infrastructure, say AED 400/ sq ft initial (AED 4,000,000).
Service charges, utilities, staffing, marketing annually say AED 100/ sq ft/year (AED 1,000,000/yr) for simplicity.
Revenue mix: Hot desks, dedicated desks, private offices, meeting rooms.
Hot desks: 100 seats at AED 1,000/month each → 100 × AED 1,000 × 12 = AED 1,200,000/yr
Dedicated desks: 50 seats at AED 2,000/month each → 50 × AED 2,000 ×12 = AED 1,200,000/yr
Private offices: say 10 offices average 4 desks each = 40 desks;
Office rent say AED 8,000/month each → 10 × AED 8,000 ×12 = AED 960,000/yr
Meeting room + event space + extras: say AED 400,000/yr
Total estimated revenue = AED 3,760,000/yr
Net operating income (NOI): Revenue minus operating costs = 3,760,000 − 1,000,000 = AED 2,760,000/yr
Yield (NOI ÷ cost) = 2,760,000 ÷ (25,000,000 + 4,000,000) = 2,760,000 ÷ 29,000,000 ≈ 9,5% annual yield.
Appreciation: If asset value rises (say 5-10%/yr) plus operational enhancements, you’ll have upside on sale.
Flip (Sell) scenario
After say 3-5 years of operation, you sell the business + property. If annual NOI of ~ AED 2.8m is stabilized, applying a cap rate of say 6% (typical for premium commercial) gives value = 2,760,000 ÷ 6% ≈ AED 46,000,000.
Initial investment ~ AED 29,000,000 → exit value ~ 46,000,000 → big gain (assuming sale market supports).
Alternatively, you sell “floor ready for coworking” to another operator at premium price reflecting conversion and brand value.
Sensitivity and caveats
If occupancy lower (say only 60% seat utilisation) revenue might drop by 20-30% → yield falls accordingly.
Fit-out costs, building quality, lease terms, service charges matter.
Location must attract target clientele – premium offices demand premium location.
Exit cap rate may compress or expand depending on macro-economics, building age, competition.
Risk of oversupply of coworking/flex space must be monitored.
4. Flip (Acquisition + Conversion + Sell) strategy
Here you focus less on long-term operation and more on refurbishment/conversion and sale to another operator or investor.
Steps
Acquire large office floor/unit in a premium location at relatively favourable price (or pre-contract).
Plan and execute conversion: fit-out into coworking layout (hot desk zones, meeting rooms, private offices, common lounge, café zone, tech infrastructure).
Install strong brand/ positioning (luxury coworking for high-net-worth & corporate clients) to attract premium price.
Certify occupancy and booking metrics (if possible) as part of marketing to buyer.
Market to coworking brands, institutional investors, family offices looking for stable commercial cash-flow assets.
Exit in 2-4 years once value known, lease up confirmed, premium tenancy.
Financial illustration
Assume purchase price: AED 25,000,000 for 10,000 sq ft
Fit-out cost: AED 4,000,000
Total cost: AED 29,000,000
After conversion, stabilized NOI say AED 2,500,000/yr
If market cap‐rate for such asset = 5.5% (premium), value = 2,500,000 ÷ 5.5% ≈ AED 45,500,000
Gross profit ~ AED 45.5m − AED 29m = AED 16.5m (before transaction costs, DLD, 5% tax for commercial property, holding costs) → strong return.
Time horizon short (say 3 yrs) → annualised return > 30% IRR.
5. Choosing the right building & unit – what to look for
Grade A or near-Grade A specification (ceiling height, glazing, floor plate, MEP) so you can position premium.
Large contiguous floor-plate to allow flexible layouts.
Good transport links / metro access / parking / concierge to appeal to coworking clients.
Building service charges reasonable; amenities good.
Lease terms favourable if leased (for hold scenario) – long term, stable landlord, good rights to modify.
Zoning/usage for coworking must be allowed under building/zone licensing.
Potential to add value via branding, top-tier amenities (lounge, café, event space, tech infrastructure, high-speed internet, hybrid-work support).
6. Recommendation
Pay attention to:
Value proposition: High-yield, premium location, rising demand for flexible workspace, limited supply of prime office, ability to capture above-market rent per desk rather than per large lease.
Exit & liquidity: Both as ongoing business (hold and cash-flow) and as asset sale (flip) with strong upside.
Flexibility: Estimate tailor-made conversion plan, foresee market trends (e.g., hybrid work), ensure premium branding (luxury coworking) aligning with your image and goals.
Risk management: Choose best area (DIFC/Downtown), robust building, conservative stress scenarios (occupancy 50-60%), plan for 3-5 year horizon.
Data-driven support: Check current rental rate data (growing constantly) to support your forecast, calculate growth trend (~24-45% rental growth year-on-year in different zones)
Positioning: The coworking concept can be elevated (bespoke offices, serviced lounge, business club vibe) which justifies premium pricing for luxury, high-net-worth investors.
7. Summary key numbers
Purchase/Conversion cost: AED 25-40 million (for 10,000 sq ft example)
Estimated stabilized revenue: AED 3.5-4.0 million/yr
Estimated operating cost: ~ AED 1.0 million/yr
Net Operating Income (NOI): ~ AED 2.5-3.0 million/yr
Yield (hold): ~ 9-15% annual yield on cost (depending on deal)
Exit value (flip) at cap-rate ~5.5-6%: value ~ AED 40-50 million → potential return ~150-200% over 3-5 years (IRR ~25-30%+)
Preferred locations: DIFC, Downtown Dubai (premium) or Business Bay (good yield/value trade-off).
Risks: under-occupancy, oversupply of coworking, fit-out cost overruns, exit cap rate widening.
Check your ideas with our interactive calculator:
🏢 Dubai Coworking Conversion Calculator
Analyze Hold & Flip Strategies for Premium Office Conversions
Property Details
Revenue Mix
Operating Assumptions
💰 Hold Strategy (Operate)
🚀 Flip Strategy (Sell)
📊 Key Metrics
Here is a refined Excel-style model, along with specific building options in Dubai for your consideration
(you will need to verify final asking prices, floor-plates and fit-out scopes).
1. Financial Model Template (5-Year, 8-Year, 10-Year scenarios)
You can plug your own numbers (costs, rent growth, occupancy, cap-rate)
| Metric | Assumption | Calculation Method |
|---|---|---|
| Acquisition / conversion cost | E.g., AED 18,000,000 for 10,000 sq ft floor (cost/sq ft = AED 1,800) | Cost = Purchase price + Fit‐out + fees |
| Annual revenue year 1 | e.g., AED 3.8 m | = Unit mix × monthly rent × 12 |
| Operating costs year 1 | e.g., AED 1.0 m | Estimate service charge + utilities + staff + marketing |
| Year 1 NOI | Revenue – Operating costs | e.g., 3.8m – 1.0m = AED 2.8m |
| Yield year 1 (Hold) | NOI ÷ total cost | 2.8m ÷ 18m = ~15.6% |
| Rent growth assumption | e.g., +5% p.a. | Adjust revenue each year |
| Cost growth / inflation | e.g., +3% p.a. | Increase operating cost each year |
| Exit cap‐rate assumption | e.g., 6% | Exit value = NOI in exit year ÷ cap rate |
| Exit value (Flip) | e.g., Year 5 NOI ÷ cap‐rate | Illustrate value at sale |
| IRR & Multiple | Use Excel’s IRR function over cash-flows | Show investor return |
Example numbers (with your earlier 10,000 sq ft, cost = AED 19m, revenue = AED 3.76m, cost = AED 1m)
Year 1
Cost: AED 19 m
Revenue: AED 3.76 m
Operating cost: AED 1.0 m
NOI: AED 2.76 m
Yield: ~14.5%
Then project Year 2-Year 5: assume revenue growth +5%/yr, cost growth +3%/yr.
Calculate Year 5 NOI. Suppose Year 5 NOI ≈ AED 3.35 m.
Exit at cap‐rate 6% → Value ≈ 3.35m ÷ 0.06 = AED 55.8 m.
That gives gross gain ~ AED 55.8m − 19m = AED 36.8m over ~5 years → IRR ~ ~35% (approximate).
For 8-year or 10-year hold scenarios, you can also calculate similarly cumulative cash flow from operations + exit value, and emphasise compounded growth + asset appreciation.
Sensitivity table
Show how changes affect returns:
Occupancy low (60% vs 90%)
Cap‐rate higher (7% vs 5%)
Fit-out cost overruns (+20%)
Rent growth lower (+2% vs +5%)
2. Building/Location Options – 3 strong opportunities in Dubai
Here are three candidate locations you can research for your clients. Use your network to get exact floor plans, asking prices, current tenants, service charges.
Option A: Dubai International Financial Centre (DIFC)
Why this works: Premium financial hub, very high occupancy (≈100%) in prime stock.
Indicative rents: Up to AED 220-280 / sq ft/year in this zone.
Strategy note: A converted coworking floor here can charge premium per‐desk rates, target corporates, family offices, fintech. High up-side on both yield and value appreciation.
Key things to check: Purchase cost per sq ft (often high), fit-out cost for premium finishing, legal/usage zoning for coworking operations in tower.
Option B: Business Bay
Why it works: Slightly lower cost than DIFC, still very good connectivity and demand. Rental growth has been very strong here (+46 % in some measurements) due to scarcity.
Indicative rents: Some sources show AED 140-180 / sq ft/year for Business Bay.
Strategy note: Good “sweet spot” for yield and value; still premium enough to attract high-end coworking clients but more favourable acquisition cost than ultra-prime DIFC.
Key things to check: Building services, large contiguous floor-plate, ability to brand/convert coworking offering (amenities, lounge, meeting rooms).
Option C: Emerging / “Value” District (for higher yield) – e.g., Dubai Silicon Oasis or Dubai South
Why consider it: Lower acquisition cost per sq ft → higher yield potential, although market prestige and tenant quality may be slightly lower. For your investor clients who prioritise yield (rather than ultra-prestige) this could be interesting.
Indicative rents: For example Dubai Silicon Oasis ~ AED 79-90 / sq ft/year.
Strategy note: Convert to coworking targeting tech/start-up hybrid firms, crypto companies (which you target) — lower cost base, higher flexibility, strong yield.
Key things to check: Demand in that submarket; fit-out cost relative to value; exit cap-rate may be wider (higher risk) so value may grow slower.