Warehousing space sees strong increase in market activity
Industrial and warehousing space witnessed a strong increase in market activity, after a prolonged period of subdued demand levels throughout 2018, on the back of a spike in renewal, relocation and consolidation exercises, an expert noted,
Murray Strang, head of Dubai Office at Savills, said that most of these transactions were under discussion over the last few quarters and were completed during H2 2019 on account of proactive measures implemented by the government such as reducing fees for business incorporation, relaxing FDI norms, among others.
In its Dubai Industrial Market report for the second half of 2019, Savills noted that a healthy mix of small, medium and large sized transactions were observed across most micro-markets. The majority of the demand was concentrated across locations such as Dubai South, Jebel Ali Free Zone Authority (Jafza), Dubai Investments Park (DIP), and National Industrial Park (NIP). Demand drivers across these micro-markets varied depending on various factors such as the nature of the business and warehousing specifications.
The emergence of new concepts such as 'cloud kitchens' and 'vertical farming' has also had a positive impact on warehousing demand in the city. Occupiers from the F&B sector and select third party logistics companies that service the domestic market continue to display a preference for Al Quoz due to its central location. While Jafza remained the prime venue for engineering and manufacturing businesses, Dubai South emerged as arguably the preferred location for e-commerce companies and 3PL players during 2019.
During H2 2019, close to 350,000sqf of warehousing space was leased across Dubai South by government entities (some of these were dedicated to Expo 2020), international e-commerce companies and automotive spare part manufacturers among other firms. More than 750,000sqf of land was also leased on a long-term basis across Dubai South, making it one of the most active industrial and warehousing markets during H2 2019. DIP and Jafza were among the other key markets to witness strong demand during the review period. In DIP, new leases (accounting for 70 per cent share of total transactions) and renewals summed up the 200,000sqf of transaction activity concluded by the industrial experts at Savills.
Out of the 12 key warehousing and industrial micro-markets in Dubai, rental correction was observed across only five micro-markets when compared to H1 2019 while they have remained stable across all the other locations. Rental decline was more prominent across Grade B stock where prices have corrected by an average 10-12 per cent on a half yearly basis. Landlords are anticipated to remain flexible around lease terms and rental rates in 2020. This will continue to support demand for good quality stock in the city.
Demand is likely to remain strong from existing sectors and emerging industries such as indoor and vertical farming, and cloud kitchens. The e-commerce sector is anticipated to continue driving demand for warehousing space in the city. As a sector, it is still at a very nascent stage with less than five per cent share of the total retail sales in the UAE, compared to 12-15 per cent in countries such as the United Kingdom and the United States.
Swapnil Pillai, associate, Research Middle East at Savills, said: "With Internet penetration in the UAE at 91 per cent, the highest in the region, coupled with a high share of young and educated population, the e-commerce sector is poised for growth. This will support the long-term growth of institutional grade modern warehousing stock in the city. There is also a renewed focus on sustainable development across the warehousing sector. Few regional retail operators and warehouse developers have incorporated renewable energy and other sustainable practices into their warehouse. We anticipate this trend to continue and grow in line with Dubai's vision and focus on sustainable developments."