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UAE logistics boom demands more and better warehouses

Workers load branded boxes at the distribution warehouse unit at the Aramex Emirates head offices and freight and logistics facility at Dubai Logistics City Reuters
The sub-index for new orders jumped to 59.9 in April, the fastest pace of growth in new business since November 2021
  • Industrial rents soaring in Dubai due to low supply
  • ‘Speculative’ warehouse development remains uncommon
  • UAE aims to grow industrial GDP contribution to AED300bn by 2031

More warehouses must be built in the UAE to meet future needs, as high-growth industries such as e-commerce and manufacturing drive demand for industrial property, experts say.

UAE developers rarely construct industrial warehouses speculatively (without first agreeing a tenant), as is common in developed markets. Consequently, there has been little fresh recent supply and the pipeline of future developments is slim.

“There is a lack of good-quality industrial and logistics space throughout the UAE,” said Adam Wynne, co-head of UAE industrial and logistics at Knight Frank.

“The country’s response to the pandemic has been praised and we have seen businesses grow and absorb additional space, compounded by new market entrants.

“We expect this trend to persist throughout 2023, with absorption rates continuing to increase and a fundamental shortage of stock.”

Jonathan Briggs, head of industrial and logistics at CBRE Middle East, added: “There is some property available to rent but not at the size, quality, or capacity businesses need.”

It is difficult to find warehouses offering more than 20,000-30,000 sq m and many of those are ageing buildings that require investment, he said.

E-commerce giant Amazon opened a 100,000 sq m purpose-built ‘fulfilment centre’ in Dubai last month, but large-scale new-build projects such as this are rare.

“The market is characterised in great quantity by old, out-of-town manufacturing and trading warehouses and the supply of modern logistics warehousing accounts for a small portion of total stock, with vacant stock being minimal,” CBRE said in a January paper.

Warehouse rental prices in Dubai soared in 2022, according to a report by Knight Frank in January. Top-tier Grade A buildings in Dubai’s Al Quoz saw the sharpest annual increase of 57 percent in Q4 2022, and are now 44.2 percent above pre-pandemic levels.

Warehouse rental prices in Dubai soared in 2022. Source: Knight Frank

The smaller market of Abu Dhabi is more stable, with rental rates largely unchanged in the six main markets Knight Frank monitored, due to slower demand and less movement among occupiers. Occupancy rates are high.

Chart, Diagram, Plan
Industrial rents in Abu Dhabi range from AED 280 ($76.24) to AED 550 per sq m. Source: Knight Frank

Knight Frank’s Wynne said capital values and rental rates have continued to rise and this is unlikely to change unless significant new stock is launched.

Aiming for industrial growth

All of this is concerning, given the importance of industry to economic growth, the experts said.

The UAE’s thriving industrial sector – encompassing the manufacture, supply and shipping of products – accounted for around 50 percent of GDP in 2021, according to the World Bank, and the government is working to increase this.

The Dubai Industrial Strategy 2030 hopes to generate an additional AED160 billion by the end of the decade by transforming the emirate into a global industrial hub.

The UAE’s Operation 300bn aims to increase the industrial sector’s contribution to GDP to AED300 billion ($81.6 billion) by 2031, from AED133 billion in 2021.

Abu Dhabi Industrial Strategy aims to more than double the size of the manufacturing sector to AED172 billion.

Manufacturing is expected to play an increasing role in the country’s economic growth and the Make It In The Emirates campaign, celebrating products manufactured on home turf, is part of this.

The government is rolling out incentives for companies to set up manufacturing bases across the UAE, and the Ministry of Industry and Advanced Technology said in February it issued 263 new industrial production licences in 2022, up 20 percent from 2021.

The global e-commerce boom is also fuelling demand for UAE warehouses. The UAE’s e-commerce market is projected to grow by 8.4 percent annually to $17.3 billion by 2027, according to a report this week by Tradeling.

The rise of cloud kitchens – companies that prepare food solely for home delivery – and data centres is another market driver.

Shop, Shopping Mall, ArchitectureMarks & Spencer
UAE-based Kibsons is buying, rather than renting, a warehouse for its new arrangement with Marks & Spencer

Many industrial occupiers are putting up with issues that could negatively impact their operations, according to Briggs.

Such issues include sub-standard power supply or air conditioning, poor site coverage making access and navigation tricky, and a higher than preferred office-to-warehouse ratio (the ideal being below 5 percent).

Wynn said the stock shortage is likely to get worse in the short term, but he said indications from investors and developers is that this issue “will be tackled fairly easily”.

“Unlike other sectors that are undersupplied, such as prime offices, constructing an industrial and logistics facility is fairly straightforward for those with the capability and know-how.”

UAE-based food distributor Kibsons is planning to buy, rather than rent, a new warehouse to service its e-commerce partnership announced this week with the UK’s Marks & Spencer, operated in the UAE by Al Futtaim Group.

Kibsons managing director Jamal Hussain said: “We wanted to avoid the hassle of dealing with landlords who are likely to increase rent every five to 10 years or even sell the space to another business.

“Investing in a warehouse will give you the freedom to customise the space and build it the way you want it.”

Yearly rental increases among key Dubai locations in 2022

  • Al Quoz Grade A (57.1 percent)
  • Al Quoz Grade B (33.3 percent)
  • Dubai South (34.6 percent)
  • Jebel Ali Free Zone Grade A (23.8 percent)
  • Jebel Ali Free Zone Grade B (25 percent)
  • Dubai Industrial City (21.7 percent)
  • National Industries Park (14 percent)
  • Dubai Investment Park (28.8 percent)

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