The UAE aims to attract a further US$75 billion (approximately AED275 billion) into the country’s industrial & manufacturing sector by 2025, as part of the government’s continued diversification efforts to raise non-oil & gas revenues, according to the latest UAE Industrial Market View by global real estate consultancy firm CBRE.
Dubai Investment Park (DIP) remains one of the most in demand on-shore locations, whilst also boasting an active secondary market. Capital values in the development are now in the range of AED4,000–4,500/sqm. Whilst industrial rentals across various facility types have experienced deflationary pressures over the last 12 months, ground rents across the market have remained broadly unchanged.
Commenting on the report, Mat Green, Head of Research and Consulting, CBRE Middle East said, “Since the second half of 2016, there has been a notable increase in the demand for light industrial units for light manufacturing facilities. However, in terms of the overall enquiry numbers, these have reduced across all markets, whilst deal times for transaction closure have also increased as occupiers have become more cautious in their approach, particularly when committing to new capital expenditure.”
From a location perspective, the majority of new enquiries have been registered for facilities in the free zones, with JAFZA the most popular sub-market. DIP is also experiencing rising supply levels, with multiple new terraced unit schemes being developed by private developers, with sizes typically ranging from 500 – 2,000 sqm. As a result, a further easing of rentals for Class 2 stock is anticipated as available product increases.
As conditions have softened, an increasing number of occupiers have stated to test the market aiming to secure preferential deals at rates perceived to be under the current market. There also continues to be ‘a flight to quality’ with occupiers moving from traditional non-free zone industrial areas such as Umm Ramool, Al Quoz and Ras Al Khor, relocating to newer locations such DIP and Dubai Industrial Park.
As the market has softened, a growing imbalance has emerged between the number of willing sellers and the number of willing buyers, resulting in a contraction of sales prices across key locations. Whilst pressures on rentals has also emerged, with an average 7% decline recorded across the market.
“Due to market conditions, landlords are now more willing to drop rentals and increase incentives, including rent-free periods, in order to attract potential tenants. With the economic environment likely to remain weak in the short term, we anticipate a further evolution of a tenant led market,” said Green.
Whilst all tracked locations have seen rentals decline or remain flat over the past year, Class 1 industrial assets have generally been the most resilient, recording <5% rental reductions over the period. This trend is set to continue in the short-term at least, with limited new quality supply expected.
The JAFZA sub-market saw no material change in rentals over the past year, underpinned by high occupancy rates for warehouses and light industrial units (LIU’s) from the free zone operator (primary market), with only 7-10% currently vacant. The bulk of these are utilised as occupier incubator facilities, before transitioning to purpose built facilities. However, JAFZA’s active secondary market has witnessed an increase in the number of properties available for sub-lease and sale, leading to a decline in capital values over the last 12 months, with rates now equating to around AED2,153 – 2,691/sqm for Class 1 industrial assets.
Occupiers are understandably keen to take advantage of the prevailing market, to locate to newer facilities with lower rentals, better infrastructure and road connectivity.
Further signs of stress have also emerged with the consolidation of the logistics industry, with a number of smaller firms being acquired by their larger counterparts.
“We anticipate that excess capacity will be returned to the market as companies look to economise from duplicated facilities. This is further reflected in the notable dip in the number of enquiries from logistics operators over the past year, a trend which may well extend out further for another 6-12 months. Despite the softening market, there have been a number of new developments launched. This includes DAFZA’s 11,000 sq m custom bonded scheme with 33 units called DAFZA Industrial Park. The project is located in Al Qusais Industrial Area V with quick access to the Dubai International airport,” continued Green.
Multiple private developers and funds along with master developers like DSO, JAFZA, Dubai South, TECOM, are actively seeking occupiers, with an aim to deliver them custom built-to-suit (BTS) industrial and logistics facilities.
Dubai’s worker accommodation market has remained relatively stable over the last 12 months with the majority of key markets being tracked reporting flat growth – Jebel Ali Industrial Area (0% Y.O.Y), Al Quoz (0% Y.O.Y). However, DIP has witnessed a 5% (YOY) reduction in rates, driven by an increase in supply in the sub-market, against weakening demand fundamentals.
The current rentals at Jebel Ali Industrial Area are now around AED3,500/room/month, with Al Quoz AED3,700/room/month and DIP at AED3,700/room /month.