Dubai is facing a shortage of warehouse space, as new businesses come in and existing companies expand their footprint, according to a report on Thursday.
Requirements for new warehouse space in the emirate reached 9.9 million square feet in the third quarter of the year, while the supply of under construction warehouse stock stands at only 1.56 million square feet, Knight Frank said in its latest analysis.
“Demand is outstripping supply and occupiers are faced with the prospect of leasing more secondary stock, while others are gravitating towards locations in Abu Dhabi, which is benefitting from spillover demand,” the report said.
The significant portion of the demand comes from the logistics sector, accounting for 44% of new requirements, followed by the manufacturing and industry (16%) and technology sectors (13%).
Among those that require warehouse space are companies in the automotive sector, as well as last-mile centres.
According to Maxim Talmatchi, Associate Partner, Co-Head of Industrial and Logistics, there have been new market entrants in Dubai from as far as Asia Pacific and CIS countries, as well as Turkey and India.
“Demand has been strong this year and we have worked with several new market entrants… Additionally, existing industrial occupiers have also been busy expanding their footprints in Dubai.”
Also contributing to the demand are businesses that have opted to rent out warehouses for retail purposes, transforming industrial areas like Al Quoz into an alternative retail destination.
“With lease rates [in Al Quoz] at AED58 per square foot, retailers, many of whom are fitness and wellness businesses, cafes and art galleries, are continuing to snap up warehouses for use as retail premises, adding to the boho vibe that has become entrenched in this part of the city,” said Faisal Durrani, Partner – Head of Research, MENA.
With the demand growing, developers are exploring opportunities to enter the market with Grade A logistics build-to-rent products.
Talmatchi estimated that around 9 to 10 million square feet of Grade A logistics warehousing will be delivered in Dubai in the next 10 years.
While demand is growing, Knight Frank noted that the cost of leasing warehouse space has remained stable. However, certain locations have seen an uptick, with Grade B rents in JAFZA and Dubai Industrial City rising by 25% and 19%, respectively.
In Al Quoz, Grade A rents have also jumped by 52% from January 2020 levels, making it the most expensive warehouse leasing location in Dubai.
(Writing by Cleofe Maceda; editing by Seban Scaria)