Curtailed global trade volume and continuing oil price fluctuation is impacting demand for industrial/warehousing real estate in Dubai despite the city retaining its position as the regional logistics hub, new research shows.
The latest Industrial Market Performance report for summer 2016 from Core, UAE Associate of Savills, found that a sizeable gap in rental rates exists between Grade A and Grade B stock, which is attributed to build quality, scope for special and infrastructure expansion and ease of access
David Godchaux, CEO of Core, said: Many of the existing occupiers are trying to optimize current footprint and evaluate relocation costs while new entrants are generally cautious when undertaking their first phase expansions in the region.
This has led to a marginal release in supply, albeit mostly in the Grade B category. Ready built Grade A stock continues to attract tenants while large logistics requirements are purpose built and are mostly positioned in the newer submarkets.
Al Quoz saw its overall rents depreciate by 8% year-on-year (yoy), while Ras Al Khor witnessed a 5% dip yoy. Godchaux said: Established areas such as Al Quoz and Ras Al Khor continue to witness high occupancies although older stock and limited room for expansion is pushing rents towards a downward adjustment.
Jebel Ali Freezone Authority witnessed a 9% year-on-year softening in its overall rentals, however, due to its established infrastructure, it continues to attract international occupiers and offers solutions for larger spatial requirements.
The spill-over of smaller and on-shore requirements is largely catered by the Jebel Ali industrial area as it offers supply in all formats and sizes such as manufacturing, warehousing and land plots, but with predominantly Grade B build quality, said Godchaux. The rental range remained relatively flat between AED 32- 40 sq. ft./annum.
The new manufacturing activity in Dubai is largely positioned between the industrial zone within Dubai Investments Park (DIP) and Dubai Industrial City (DIC). DIP caters to light, medium and high tech manufacturing and warehousing requirements and has leased almost 95% of its land, while rental movement in its sub-letting market in Q2 witnessed a marginal drop of 4% year-on-year.
Dubai Industrial City (DIC) has dedicated industrial zones and offers land leases for self-build purposes appealing to end users. It also provides industries the option to lease out ready-built warehouses for storage/logistics or light manufacturing at competitive entry levels as low as AED 28-32 sq. ft./annum and has experienced no changes in rents.
Godchaux said: The future drivers for Dubais industrial and logistics sector will be the servicing of maturing local and regional economies, strengthening its position as a global hub. The government is bolstering this position through the recent announcements of the new Dubai Wholesale City and Dubai Industrial Strategy, aimed at increasing total output and creating value for the manufacturing and logistics sectors.
These new initiatives should propel trade volumes and in turn strengthen the industrial real estate in the mid to long term but may fall short to drive immediate demand in the near term. The current overall sluggish demand marks a revision of our near term outlook as we expect rents to remain flat or contract marginally for following two quarters.