Industrial rents in Dubai and Abu Dhabi continue to recover as demand for warehousing surges across the UAE, according to the Spring 2022 Dubai & Abu Dhabi Industrial Markets Review report by global real estate consultancy, Knight Frank’s.
Average warehousing lease rates continue to recover rapidly across Dubai, with grade A rents in Al Quoz experiencing the sharpest increase both on a quarterly and annual basis.
Of the nine industrial submarkets Knight Frank tracks in Dubai, all but two have experienced rental increases so far in 2022; only Grade B rents in JAFZA (Dhs16 psf) and National Industries Park (Dhs25 psf) have held steady.
Faisal Durrani, Partner – Head of Middle East Research, Knight Frank, explained: “The brisk reopening of Dubai’s economy has spurred business confidence. And it is this heightened confidence among businesses across the country that is underpinning the resurgence in warehousing demand.
“In addition, to the government’s response to COVID-19, the pandemic has also driven a seemingly permanent shift in consumer shopping habits, not just in the UAE, but globally, which is fuelling demand for warehousing and distribution facilities. Indeed during 2021, excluding confidential requirements, almost a quarter of all demand in Dubai was from 3PL and logistics operators, which totalled almost 1.6m sq ft of space.”
Knight Frank also points to the change in ownership laws announced as part of a raft of economic stimulus measures since the pandemic began, which include a range of new visas, designed to attract, and retain talent, as being a significant contributor to increased business confidence, activity, and demand.
While the ability for international businesses to fully own and operate businesses in over 1,000 sectors outside the city’s well-established free zones without an Emirati partner has not directly translated into an exodus from free zones, it has begun to attract international manufacturers not previously present, says Knight Frank.
On the investment front, Knight Frank highlights that demand from investors for assets is high, although challenges around lease structures are holding the market back.
Andrew Love, Head of Middle East Capital Markets and Occupier Services & Commercial Agency, Knight Frank, said: “The majority of industrial properties are leased on short terms (1-3 years), which doesn’t match the requirements of institutional investors. We are now seeing this trend change, and many local and international occupiers are happy to sign longer leases with no breaks. This is being achieved using incentives such as extended rent-free periods.
“If this trend continues, we can expect a compression of yields in the industrial and logistics sector, which could slip to c.8%, from about 8.75% currently”.
The picture in Abu Dhabi is more stable, with warehouse rents in the six main markets tracked by Knight Frank remaining unchanged so far this year.
Rates in Abu Dhabi Airport Free Zone (Dhs550 psm) are still the most expensive in the city and Q1 2022 marks the seventh consecutive quarter rents here have been stable.