How demand for warehousing space is gathering pace in Dubai
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How demand for warehousing space is gathering pace in Dubai

How demand for warehousing space is gathering pace in Dubai

With the logistics sector dominating the market for new leasing, demand for warehousing space is gradually ticking

Rents for industrial warehouse space across Dubai remained relatively unchanged during Q2, delivering the greatest stability the market has enjoyed since rents began to slump in 2015.

Despite this emerging stability, rents still remain at or near record lows, leaving occupiers firmly in the driving seat. Indeed, the low rents mean some occupiers are moving to lock in longer term leases. This perhaps suggests a growing sense of the market starting to bottom out, following six consecutive years of rent compressions. This has led to an uncharacteristically busy summer, with an increase in requirements.

In Dubai, across the nine main industrial sub-markets we track, quarterly rental rises were registered in Dubai Industrial City (DIC) and DIP, where rents rose by a marginal Dhs1 per sqft to Dhs22 per sqft and Dhs24 per sqft, respectively.

Rents in JAFZA (Grade B) were the only ones to decline, ending the second quarter Dhs1 per sqft lower than Q1 at Dhs15 per sqft, high-lighting that there is still little demand for facilities that are not modern or well maintained.Landlords too are responding to the market’s buoyancy, holding rents firm; however, lease incentives continue to persist. We are now even seeing “rent-free periods” offered in the industrial sector, previously only ever a feature in the office and retail sectors. New requirements rose to 1.22 million sqft, up 1.4 per cent on Q1.

The logistics sector, including 3PL, freight forwarding businesses and manufacturing companies dominated the requirements received, accounting for over 90 per cent of new demand during Q2. Freight forwarding inquiries alone have accounted for upwards of 450,000 sqft of new lease requirements and contributed to 35.8 per cent of total leasing inquiries in Q2 2021. Meanwhile 3PL service providers and e-commerce occupiers primarily fuelled the demand for logistics and distribution space.

E-commerce becoming a mainstay
The UAE e-commerce market was estimated to be worth a record $3.9bn in 2020, a 53 per cent increase in value on 2019. The Dubai Chamber of Commerce and Industry estimates that this figure will increase to $8bn by 2025, hinting at a prolonged period of strong demand for warehouse space from the country’s retailers.

And it’s not just retail giants such as Amazon and Noon underpinning growth; we also noted a sharp increase in new e-commerce players entering the market. This covers sectors ranging from food products to furniture and pharmaceutical providers.In a related trend, the pandemic has also fuelled a boom in demand for satellite kitchens to satisfy the rising demand for online food orders.

Throughout the pandemic, restaurants have grown their real estate footprints by approximately 30-40 per cent and demand from this sub-sector continues to intensify. Home delivery restaurants too are very active at present and are seeking central community locations of between 5,000-10,000 sqft, rising to between 30,000-80,000 sqft for central kitchens, adding to the depth and diversity of requirements we are seeing across the city’s industrial landscape.

Faisal Durrani is a partner and head of Middle East Research at Knight Frank

Taken from Property Finder’s Prestige special report in Gulf Business’ November issue

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