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The UAE industrial real estate has always been considered a tough sector, nearly “untouchable” when the global economic crisis occurred. With speculation an unknown thing in this sector, it is the least likely to be affected by the rise and fall of property values, reporting generally stable rates quarter after quarter. Here, Parvees
Gafur of Propsquare gives his two cents worth on the “unglamorous” sector that maintains a steady stream of tenants and investors.
Current activity in the industrial sector
Utilizing the trump card as the region’s most strategic city by location and infrastructure, there has always been heavy potential for trading and logistics activities in Dubai. The low activity years post-financial crisis have enabled the construction and completion of infrastructure in the premiere industrial parks such as the Dubai World Central (DWC), Dubai Industrial City (DI) and Dubai Investments Park (DIP), which are all on the corridor of the Expo 2020 venue. Forecasting strong economic conditions and activity in the market, new businesses and industries are expected to set up base and their own facilities in the premiere industrial zones here.
Areas preferred by different businesses
There is always the wellestablished Jebel Ali Free Zone and DIP. These are well-supported by newer communities such as the DWC, DI and TechnoPark. The choice to move into any of these depends on whether the company is a free zone or a mainland entity, their activity to operate and the nature of their business. A heavy industrial company such as manufacturing may not be well supported at DWC as it targets logistics and aviation-related operations. So the best choice for these heavy industrial firms will be DIP or DI, with their permissions and strong infrastructure. Currently, there is also the migration of units from the old industrial areas to the newer industrial
communities due to the availability of better space.
Average rental rates in old and new locations
The plot lease rates at DI are at an average of Dh34 per square meter, DIP at Dh55 per square meter for logistics and Dh38 per square meter for industrial plots. In the traditional industrial areas such as Al Aweer and Al Quoz, the going industrial unit lease rates are from Dh30 to Dh35 per square foot, while DIP’s completed industrial units are pegged between Dh30 and Dh40 per square foot. There is currently no sublease activity permitted in other communities like DI as it mainly targets endusers.
New stock expected to enter the market
The newer communities, for sure, have much more land bank, and that should attract many more industries in the future. There are fewer communities today where investors can enter and develop for investment, e.g. DI focuses on end–users and currently does not have a provision for subleasing or trading of their assets. The plots that are being developed here are for their own use, so these may not come back to the trading market. It will be wiser for investors active in the real estate market to acquire industrial assets that permit them to enter as the returns are far higher than those in the residential sector, enjoying anywhere between 10% and 15% returns per annum.
Factors that will spur growth in the sector
For end-users, with the increasing lease rates on available units and less supply, it is much more feasible for them to develop their own premises or buy an existing base. Today, development construction costs stand anywhere between Dh175 and Dh275 per square foot for industrial properties. The current lease rates being anywhere between Dh30 and Dh50 per square foot per annum for properties such as warehouses and factories and looking to shoot up with the Expo 2020 traffic, smart industries are better at setting up their own facilities, adding an asset for them. They have a four to six-year window to recover the cost of development as opposed to leasing. The support from financial institutions to investors by way of offering mortgage to buy property or commercial finance is another key encouraging factor.
INDUSTRIAL AREAS IN DUBAI:
* Al Quoz
* Al Qusais
* Dubai Industrial City
* Dubai Investments Park
* Dubai World Central
* JAFZA Extension/JAFZA North
* Jebel Ali Industrial Area
* Ras Al Khor
* Umm Ramool
Source: Ellen Joyce Soriano, Special to Freehold