_Dubai industrial and logistics market - March 2017

Supply

In Dubai, whilst falling oil prices weakened investor and consumer confidence, Grade A industrial rents have remained flat on an annual basis. The resilience of Grade A rents across Dubai is partly due to a lack of supply of quality warehousing in the emirate, particularly in on-shore locations.

Grade B industrial rents have witnessed year-on-year declines of approximately 13% on average across the various submarkets within the Emirate. On the whole, these declines are commensurate with the often poor and outdated quality of stock on offer in the market. Changes in Dubai Civil Defence code and firefighting standards mean that many older warehouses are now unsuitable for the demands of businesses/tenants, which places further downward pressure on industrial rents and increases vacancies.

In the Jebel Ali Free Zone (JAFZA), supply far outweighs demand at present, which has resulted in a decline in rents and capital values, (approximately 20% for Grade A stock) since the peak of the market in 2014. There are few warehouses in Dubai South available on the secondary market to provide a rental tone for the area. However the below quoted rents in Figure 2 have remained flat for Dubai South built stock.

Demand

The greatest demand in 2016 was from the general trading; industrial manufacturing; logistics and SME sectors. 

Enquiries from the industrial and manufacturing sector increased to 18%, an indicator that the Dubai government’s Industrial Strategy and intent to become more of an industrial manufacturing market is working. An example of this trend is Unilever announcing plans to build an AED 1 billion factory in Dubai Industrial Park, to manufacture goods locally, for export to 80 countries in the Middle East, North Africa and Europe.

There has also been strong demand for warehousing from the Fast Moving Consumer Goods (FMCG) general trading sector, particularly for Grade A specification properties, with built-up areas (BUA) greater than 100,000 sq ft. Enquiries from general trading companies encompass approximately 18% of total interest in 2016.

11% of total enquiries are from companies in the SME sector, predominantly seeking onshore warehousing in the region of less than 5,000 sq ft BUA. It is interesting to note that the majority of these SME’s are start-ups, demonstrating the markets underlying optimism.

There has been a decrease in medium sized enquiries and transactions for circa 50,000 sq ft BUA warehouses, with occupiers postponing new purchases and requirements for new facilities that require substantial investment.

Key themes:

• There is a lack of European quality specification warehousing across the Dubai industrial submarkets across all size ranges. Demand from FMCG, logistics, e-commerce and general trading sectors, for such property, keeps grade A rents flat in an otherwise challenging market. The lack of quality warehousing supply may prove to be a constraint for growth in the short to medium term. Businesses looking for such premises today are faced with the option of building their own facility, (entering into a build-to-suit with a master developer) or seeking options on the secondary market
• Despite challenging market conditions there are still high levels of investment from government and GREs in the industrial sector, which is a key pillar of growth for the Dubai economy
• There has been significant investment from the private sector for large-scale industrial premises in new industrial zones such as Dubai Industrial Park, Dubai South, JAFZA and National Industries Park (south of Dubai). For example, retailer Majid Al Futtaim has recently announced their plans to build an 800,000 sq ft warehouse for Carrefour in National Industries Park, their largest in the region

Read the results of our latest UAE Industrial & Logistics Research Report in full here.