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Saudi warehousing shortage offers developers opportunity

Saudi warehousing Shutterstock/one photo
Many high-quality Saudi warehouses are investing in technology such as automation
  • Market ‘severely undersupplied’
  • Rents up 20% in Riyadh
  • Vacancies as low as 3%

Saudi Arabia is facing a severe shortage of warehousing, and experts say the challenge for industrial occupiers presents an opportunity for developers.

Real estate consultancy Knight Frank said the warehouse market in the kingdom remains “severely undersupplied” and rents are on a sharp upward trajectory.

Average warehouse rents in Riyadh rose 20 percent during the first half of 2023, and climbed 15 percent in Jeddah. 

Vacancy rates in Riyadh and Jeddah have fallen to 3 percent, as more than 550 new industrial licences were issued in the first half of the year.

Soaring demand

The e-commerce industry, in particular, is driving the need for distribution centres, according to Knight Frank. Warehouses and some developers are already responding. 

The Saudi Authority for Industrial Cities and Technology Zones, also known as Modon, has signed a deal to build 14 high-tech warehouses in Jeddah. Global e-commerce companies are the likely tenants.

Saudi Ports Authority and Saudi Global Ports on Sunday signed a contract to build a SAR1 billion ($266 million) logistics park at King Abdulaziz Port in Dammam.

Covering more than one million sq m, it will include warehouses and yards equipped to store and handle all dry and refrigerated goods. 

But the volume of planned stock remains limited.

Faisal Durrani, partner – head of research, Mena at Knight Frank, said: “For developers, the industrial market is their oyster given that the most sought-after stock – high-quality, internationally specified warehouses – remains in short supply.”

In Riyadh, about 500,000 sq m have been completed in the last 12 months. Many occupiers are exploring build-to-suit models, in which buildings are provided to a tenant’s exact specifications.

Durrani added: “Demand for storage facilities, last-mile logistics facilities and cloud kitchens has soared, with a particular need for smaller, centrally located warehouses to cater to these requirements.”

According to Knight Frank, average rents in Riyadh stand at SAR190 per sq m, compared with SAR205 in Jeddah. The Dammam Metropolitan Area has experienced a rise of 14 percent in warehouse rents, to an average of SAR230.

Government involvement

The kingdom is in a drive to modernise operations. Last year the Saudi Ministry of Industry and Mineral Resources launched the Future Factories Programme and Smart Industry Readiness Index, which aims to automate around 4,000 factories.

Such initiatives culminated in April with the World Bank upgrading Saudi Arabia’s ranking in its Logistics Performance Index to 38th globally, up from 52nd. 

Harmen De Jong, partner – head of strategy & consulting, Mena at Knight Frank, said Saudi warehousing was getting better. He explained many high-quality warehouses were adopting technologies such as automation, robotics and advanced inventory management software. This is creating a wider quality gap between Grade A and Grade B warehouses.

Knight Frank said one of the biggest real estate opportunities in the kingdom revolves around the industrial and logistics sector.

The National Industrial Development and Logistics Programme was launched in 2019. It has channelled about SAR378 billion into projects across Saudi Arabia, mainly focusing on energy, mining, industry and logistics. 

The National Industrial Strategy aims to drive industrial exports to SAR557 billion through a target of 36,000 factories by 2035.

The Global Supply Chain Resilience Initiative aims to position Saudi Arabia as a pivotal link in the worldwide system. Experts expect it to attract SAR40 billion of investments within two years.

The Saudi non-oil economy has grown in recent months, despite an economic slowdown due to Opec+ oil production cuts. Saudi Arabia called for the cuts to force up oil prices and store cash for its giga-projects. 

De Jong said: “The government’s commitment to fostering a world-class industrial and logistics market in the kingdom is clear.”

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