Dubai, UAE - As part of the UAE’s economic diversification plan UAE Vision 2021, Abu Dhabi Economic Vision 2030 and Dubai’s Industrial Strategy 2030, the development of the industrial sector is seen as a strategically important goal for sustained long term success of the national economy. The diversification initiatives are beginning to pay dividends, albeit slowly; as at 2016 the manufacturing and transport and storage industries were the fourth and fifth largest industries in the UAE respectively, contributing a combined 16.1% to GDP (production approach), up from 14.6% in 2010.
· The tepid global and national economic backdrop has put pressure on industrial real estate in Abu Dhabi and Dubai. This is as a result of businesses which operate in this area succumbing to weaker business and consumer demand, which has struggled to show meaningful signs of growth despite the resurgence in oil prices – which at the end of May 2018 stood at almost US$78 per barrel.
· Alongside this, as the specification, location and labour elements of industrial and logistics businesses change – the speed of these changes has been amplified by the emergence of new technology - we are seeing that the real estate provisions that industrial and logistics clients require have also changed. A reasonable proportion of the current stock within both Abu Dhabi and Dubai’s market does not meet this criteria, therefore it is little surprise that we have seen average rents fall across most markets.
· Grade B stock across both Emirates’ industrial and logistics zones has seen the most significant fall in achieved rents over the course of the 12 months to Q1 2018. However, rents in quality Grade A zones have bucked this trend in certain locations such as Jebel Ali Free Zone and Dubai Investments Park where rents increased by 16.7% and 6.7% over the year to Q1 2018.
· In Abu Dhabi we have seen similar trends with locations such as KIZAD and Al Markaz remaining resilient relative to the wider market, albeit with rental rents still softening over the last year.
· During this time period we also witnessed a flight to quality with some occupiers using the slower market to negotiate favourable terms which during previous cycle may not have been within their price range. This includes leasing premises with greater eaves height, larger units with more efficient designs and those located in preferential locations.
Matthew Dadd, Partner, Occupier Solutions Commercial Agency commented: “Due to the opening up of markets in the region, the industrial and logistics sector is becoming more competitive than ever. Therefore respective authorities must now carefully analyse the implications of fees such as set-up fees, governmental fees, visa costs and ports and customs fees. The culmination and significance of these costs will have a marked impact on the final decision for multinational firms.”
Tom Swallow, Partner, Occupier Solutions Commercial Agency commented: “The bulk of existing facilities for many new entrants are no longer fit for purpose. As more sophisticated businesses decide to enter the market we have seen the requirements for industrial and logistics real estate change rapidly. Much of the existing stock is either below par in terms of quality, is made up of smaller multitenant units, lacks connectivity and the dual licence structure – which is vital for industries such as e-commerce.”
For further information, please contact:
Nicola Milton, Head of ME Marketing, +971 4 426 7000, Nicola.milton@me.knightfrank.com
Taimur Khan, Manager, +971 4 426 7000, Taimur.Khan@me.knightfrank.com
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