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The long-term outlook of the UAE’s industrials and logistics markets remain strong despite the short to medium-term challenges due to the global COVID-19 pandemic, according to an advisory firm.
Trade volumes have decreased significantly since the WHO declared coronavirus as a global pandemic mid-March and the UAE’s industrial and logistics sectors are expected to be materially impacted particularly given its re-export hub status, said consulting firm Knight Frank.
However, with the UAE’s modern transport infrastructure, ranked eighth globally according to the World Economic forum’s Global Competitiveness Report 2019, combined with its central location, means that the country is an attractive proposition for global businesses looking to extend their foot-print into emerging markets by using the UAE as a regional supply and re-distribution gateway, it said.
Matthew Dadd, Partner, Occupier Solutions Commercial Agency at Knight Frank Middle East, said: “In the short term, both the Abu Dhabi and Dubai governments have focused their respective stimulus packages to support this [logistics] sector through the pandemic.”
Stressing on a solid long-term potential of the UAE, Knight Frank quoted research firm Oxford Economics saying the country’s industry sector is expected to grow by 18.4 percent, and its transport, storage and IT sector will grow 32.3 percent in the next 10 years.
On the back of the projected economic growth in these sectors, employment is also expected to grow with employment in the UAE’s industry sector expected to increase by almost 256,000 and by almost 96,000 in its transport, storage and IT sector over the 10-year period to 2030, said Knight Frank.
Occupier Market
Prime and Grade A stock in the logistics-warehousing segment of the market has seen a strong level of take up from both e-commerce firms and from third party logistics operators, it said, adding that Grade B stock continues to witness limited levels of demand due to the lack of quality stock.
Mikhail Vereshchagin, Commercial Agent at Knight Frank Middle East said: “Recent market activity shows that there is still demand from occupiers in the industrial and logistics sector to establish and expand operations in the UAE.”
Investment Market
The advisory firm suggests that investment appetite for industrial and logistics assets in the UAE remains strong despite the barriers to entry faced by third party developers.
While there is a clear requirement and demand for high quality industrial and logistics centres, most of this requirement is in areas which are near airports or ports.
However, such locations tend to be in Free Zone ownership therefore those undertaking construction of a speculatively built asset would in most cases be subject to subleasing fees. These subleasing fees can affect the financial viability of some investments, particularly those looking for medium-term return on investments.
Investors who are willing to undertake projects to supply the undersupplied Prime and Grade A market, with a long-term view, are likely to be able to attract new demand at a premium to the market, it said.
Looking ahead, Knight Frank says the short-term outlook for the industrial and logistics sector is expected to be challenging, not in the UAE alone but globally, due to the COVID-19 pandemic and the impact that this continues to have on global supply chains and consumption.
However, due to the rapid response by authorities in the UAE in providing targeted stimulus packages and further easing business regulations, particularly in the industrial and logistics sector, the UAE’s industrial and logistics sector may in relative terms not be as drastically impacted as certain other countries, it said.
“Given these challenges and the intrinsic level of competition in the market, we expect that rental rates will continue to soften over the course of 2020,” said the firm.
(Writing by Atique Naqvi, editing by Seban Scaria)
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