Rents for industrial spaces in Dubai and Abu Dhabi are recovering as demand for warehouses witnesses a surge across the UAE, according to a recent report released by global real estate consultancy Knight Frank.
The report titled Spring 2022 Dubai & Abu Dhabi Industrial Markets Review states that average warehousing lease rates will continue to recover rapidly across Dubai, with grade A rents in Al Quoz experiencing the sharpest increase both on a quarterly and annual basis.
The partner and head of Middle East Research, Knight Frank, Faisal Durrani, said: “The brisk reopening of Dubai’s economy has spurred business confidence. And it is this heightened confidence amongst businesses across the country that is underpinning the resurgence in warehousing demand.
“In addition, to the government’s response to Covid-19, the pandemic has also driven a seemingly permanent shift in consumer shopping habits, not just in the UAE, but globally, which is fuelling demand for warehousing and distribution facilities.”
Of the nine industrial sub-markets that Knight Frank tracks in Dubai, all but two have experienced rental increases so far in 2022. Only Grade B rents in JAFZA (AED 16 per square foot) and National Industries Park (AED 25 per square foot) have held steady. Durrani added: “Indeed during 2021, excluding confidential requirements, almost a quarter of all demand in Dubai was from 3PL and logistics operators, which totalled almost 1.6 million square feet of space.”
Additionally, Knight Frank also points to the change in ownership laws announced as part of a raft of economic stimulus measures since the pandemic began, which include a range of new visas, designed to attract, and retain talent, as being a significant contributor to increased business confidence, activity, and demand.
While the ability for international businesses to fully own and operate businesses in more than 1,000 sectors outside the city’s well-established free zones without an Emirati partner has not directly translated into an exodus from free zones, it has begun to attract international manufacturers not previously present, says Knight Frank.
On the investment front, Knight Frank highlights that demand from investors for assets is high, although challenges around lease structures are holding the market back. The head of Middle East Capital Markets and Occupier Services & Commercial Agency at Knight Frank, Andrew Love, said: “The majority of industrial properties are leased on short terms (1-3 years), which doesn’t match the requirements of institutional investors.
“We are now seeing this trend change, and many local and international occupiers are happy to sign longer leases with no breaks. This is being achieved through the use of incentives such as extended rent-free periods. If this trend continues, we can expect a compression of yields in the industrial and logistics sector, which could slip to approximately 8 percent, from about 8.75 percent currently”.
The picture in Abu Dhabi is more stable, with warehouse rents in the six main markets tracked by Knight Frank remaining unchanged so far this year. Rates in Abu Dhabi Airport Free Zone (AED 550 per square metre) are still the most expensive in the city and Q1 2022 marks the seventh consecutive quarter rents here have been stable.
