Dubai warehousing costs rise to among the highest in the world

Amazon

• Dubai is fourth most expensive warehouse market in the world
• Labour, electricity and diesel costs have also risen globally
• Online retail sector has surged since the coronavirus pandemic

Warehousing costs in Dubai rose by 7.7 percent in the 12 months to June 2022, making it one of the most premium warehousing markets in the world. 

Across 52 global markets monitored by Savills for its 2022 Impacts programme, Dubai was ranked fourth due to strong demand and lack of Grade A stock, leading to occupancy costs rising to $19 per square foot.

London is the most expensive warehousing market in the world, with an average prime occupancy cost of $35 per square foot (rent, service charges and taxes), followed by Hong Kong ($26) and Tokyo ($22). 

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The growth of the online retail sector during the coronavirus pandemic has resulted in the surge in demand.

The UAE online retail sector will be valued at $8 billion by 2025, up from $5 billion in 2021 and $2.7 billion in 2020, according to a report published in March by e-commerce hub EZDubai and global research firm Euromonitor International.

Amazon announced in September last year it planned to create 1,500 direct and indirect jobs in the UAE as it increased its footprint in the country. Rival Noon.com also announced last year it plans to invest $1 billion expanding its operations.

Swapnil Pillai, associate director – research at Savills Middle East said: “Dubai is an established logistics market in the region with sectors such as ecommerce, and third-party logistics (3PL) expanding activity following the onset of the pandemic. 

“The entry of new international companies, especially in the engineering and manufacturing sector, has also accelerated as a result of favourable business setup opportunities provided by the government and has boosted demand for warehousing space.” 

Rising warehouse costs are only part of occupiers’ decision-making process when it comes to space: labour costs have also risen an average of six percent globally in the past year, while electricity and diesel costs jumped 39.4 percent.

Paul Tostevin, director in the Savills World Research team, said: “Changing consumer behaviour, the ecommerce boom and shifting supply chains, resulting in a lack of space and rental growth in many highly constrained markets, have driven the global warehousing market to new heights. 

“Weakening consumer sentiment and higher energy and labour costs have not yet impacted demand or rents, and given the lack of grade A supply in many markets, costs are likely to remain high for the best located space. 

“This will also be supported by further demand for the most highly rated sustainable buildings as retailers look to ‘green’ their supply chains.”

The lowest warehousing property costs can be found in India, at between $3 and $4 per square foot. 

Lower ecommerce penetration rates and a less developed manufacturing sector mean that India has yet to see the same development as other markets, but it offers significant potential thanks to a vast prospective consumer market for online retail, and as a lower cost manufacturing base.