The industrial rents in Dubai have risen sharply over the last 12-months as demand continues to outstrip supply, according to the Year in Review Dubai & Abu Dhabi Industrial Markets Review by global real estate consultancy, Knight Frank.

 

On average, warehouse lease rates continue to escalate across Dubai, specifically Grade A rents in Al Quoz (AED 55 per sq ft), which have increased by 57% during 2022.

 

All the nine industrial submarkets Knight Frank tracks in Dubai have experienced strong rent rises in 2022 and are currently above pre-pandemic lease rates levels. 

 

Faisal Durrani, Partner – Head of Middle East Research, said: "The industrial market in Dubai is a thriving sector that plays a key role in the emirate’s economy, accounting for  60% of GDP. In Dubai, specifically, the average warehouse lease rates have shown a remarkable improvement in the last 12 months as demand has risen by 17.7%."

 

This positivity has in turn fuelled an increased number of new industrial market entrants, specifically the manufacturing sector which now accounts for 36% of the 12.2 million sq ft of demand we recorded during 2022. This was closely followed by the logistics sector, which generated 1.95 million square feet of demand last year," he added.

 

Knight Frank pointed out that the spurt in demand was mainly due to several key factors such as the strategic location of the UAE as well as the 100% foreign ownership law which makes it possible for businesses to fully own and operate in the city’s well-established free zones without an Emirati partner.

 

This is attracting international manufacturers not previously present in Dubai, stated the expert.

 

Adam Wynne, Associate Partner – Co-Head of Industrial & Logistics UAE, said: "2022 was another strong year for the UAE’s industrial and logistics sector as the market continues to evolve and mature. Over the last 12 months occupiers have continued to demand Grade A units with limited supply entering the market; a critical factor underpinning the resilience and performance of the sector."

 

According to him, lease structures continue to hold the investment market back from realising its full potential.

 

Andrew Love, Head of Middle East Capital Markets and Occupier Services & Commercial Agency, said there was a big demand for well-let logistics units from investors and real estate funds looking to diversify their portfolios. 

 

"Where a developer has built a Class A facility, we have seen a trend where local and international occupiers are willing to sign longer leases with no breaks, along with higher market rents. If this trend persists throughout 2023, taking a more forward approach and given the weight of capital chasing this sector, we can expect a compression of yields in the industrial and logistics sector to 8-8.25%, from 8.50-8.75% today," noted Love.

 

"Further, as interest rates continue to rise, we expect more companies will consider sale and leasebacks as an alternative method of financing, whilst freeing up their balance sheets and moving to an asset light model," he added.

 

On Abu Dhabi, Knight Frank said the picture was more stable, with warehouse rents in the six main markets of the UAE capital  tracked by Knight Frank remaining unchanged in 2022.

 

Rates in Abu Dhabi Airport Free Zone (AED 550 per sq m) are still the most expensive in the city, stated the property expert.

 

Even though ADAFZ leased more space in 2022 than it did in 2021, rents remain stable, primarily because vacancy levels remain stubbornly high.

 

Other industrial areas such as Kezad did not experience any change in rents as demand remains steady, it added.-TradeArabia News Service