Average warehouse lease rates are continuing to recover quickly across Dubai as demand surges on the back of changes in company ownership laws, a rise in e-commerce sales and the government's efficient response to the Covid-19 pandemic.
Demand for warehousing in the emirate is being driven by the manufacturing sector, followed by the logistics and automotive sectors, global consultancy Knight Frank said in a review of the industrial market.
The brisk reopening of Dubai's economy following the outbreak of the pandemic has spurred business confidence and that is underpinning the resurgence in demand, the report showed.
“Average warehouse rental lease rates continue to recover rapidly and can in large part be attributed to the government’s decisive response to the pandemic, which has in turn spurred a swift economic rebound,” Knight Frank said.
“The swift intervention of the authorities, coupled with Dubai’s rapid reopening and hosting of the World Expo has catalysed economic growth.”
Business activity in Dubai's non-oil private sector economy continued to improve in April as output grew at the second-fastest rate since mid-2019 and new business rose sharply.
The headline S&P Global Dubai Purchasing Managers' Index slipped to 54.7 in April from 55.5 in March, remaining above the neutral 50 no-change mark for the 17th consecutive month.
The UAE economy rebounded strongly from the pandemic-driven slowdown in 2021, carrying the growth momentum into 2022, boosted by Expo 2020 Dubai and a sharp rise in the retail, travel and tourism sectors.
The success of the UAE's mass testing and vaccination programme has allowed the government to ease Covid-19 restrictions, boosting the national economy.
Industrial grade A rents in Dubai's Al Quoz area recorded the sharpest increase both on a quarterly and annual basis, Knight Frank said.
The submarket posted an 15.2 per cent annual increase in warehouse rents in the first quarter of the year, with prices at Dh38 per square foot. The figure was up 8.6 per cent on a quarterly basis.
“The latest gain marks the fourth consecutive increase in average lease rates and also makes Al Quoz the most expensive location to lease a warehouse in Dubai,” the consultancy said.
Warehouse rates in Al Quoz are now only 0.4 per cent shy of pre-pandemic levels, echoing a similar trend across other submarkets, it said.
Of the nine industrial submarkets tracked in Dubai, all but two have experienced rental increases so far in 2022, the consultancy said. Only grade B rents in Jafza and National Industries Park have held steady.
In Abu Dhabi, industrial rent rates are more stable, with rents in the six main markets that Knight Frank monitors remaining unchanged so far this year.
Rates in Abu Dhabi Airport Free Zone remain the most expensive in the city and the first quarter of 2022 marks the seventh consecutive quarter rents there have been stable, it said.
In Abu Dhabi, too, the manufacturing sector accounted for the strongest demand for warehousing space.
In its outlook for the industrial market, Knight Frank expects central industrial areas such as Al Quoz in Dubai and Mussaffah in Abu Dhabi may face significant changes in land uses, moving away from the industrial sector to more commercial/retail warehousing.
“The redevelopment in central industrial areas may also be driven by the unprecedented demand from occupiers with new business models, such as dark kitchens, entertainment and sports facilities, and fulfilment centres,"it said.
Strict requirements by the local authorities for the development quality and specification of the newly developed warehousing stock is likely to widen the gap in rents between new and older supply, Knight Frank said.
“Over the longer term, it is our expectation that most industrial and logistics businesses will be relocated to out-of-town industrial zones,” it said.
“We expect that the newly developed stock, built to international specifications, in conjunction with various government initiatives targeted towards improving the sector, will eventually lead to more international firms moving to the UAE, further eroding the available supply.”