High returns on investment

Dubai Wholesale CityImage Credit: Gulf News Archives

In June this year, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President of the UAE and Prime Minister of Dubai, unveiled the Dh160- billion Dubai Industrial Strategy, targeting the  sectoral growth in this segment to reach an additional Dh18 billion by 2030. The new strategy has been aligned with the country’s move towards sustainable growth and a diversion from the oil-focused economic structure. Dubai has dominated the regional industrial and logistics segments for some time now and this is likely to continue with the emirate’s superior connectivity, supply pipeline and capabilities to build as per company specifications, among other factors.

Industrial supply

Industrial land in Dubai is primarily available under a leasehold title. Among the designated industrial zones, areas such as Jebel Ali Free Zone (Jafza North and South), Dubai Wholesale City and Dubai South have the largest land bank, accounting for nearly 65 per cent of the total. Developed land makes up 50 per cent of the total supply, with newer areas like Dubai Industrial City having almost 80 per cent undeveloped land from the total designated area.

By contrast, old industrial areas such as Al Quoz and Umm Ramool have very limited or no available land plots to lease directly from the government. The release of leasehold land in Dubai South, National Industries Complex (formerly Technopark) and Dubai Industrial City, which benefit from better infrastructure and connectivity, has received limited interest at the moment from smaller FMCG and other businesses looking for spaces around 5,000 sq ft or less.

In terms of current market activity in the industrial segment, enquiries and transactions in the first half of the year have remained subdued in comparison to 2014-15 levels. This can be attributed in part to the oil and gas sector putting projects on hold, which had a trickle-down effect on other industries. In the free zones, overall supply certainly outweighs demand at the moment, but most supply or vacant buildings are older and do not fit the requirements for the majority of companies.

Demand scenario

An appetite still exists among logistics companies for the right product. In onshore areas at the moment the market for end-user/occupier facilities is relatively strong, especially for highquality buildings. Firms are currently shopping for deals, with some being in expansion or relocation mode.

Buyer interest is primarily stemming from logistics companies and SME traders, looking for quality or European specification properties. These facilities, including features such as docked loading bays, high ceiling, etc. have registered a strong growth in demand in the last 12-24 months. Additionally, there is very high demand for smaller terraced units with areas of approximately 3,000- 5,000 sq ft in locations such as Al Quoz. These units are relatively affordable and we have evidence that new SMEs are setting up in such facilities.

Built-to-suit facilities were the buzzword in 2013- 15, when General Electric Oil and Gas leased a new facility with Jafza and IKEA opened its largest distribution centre in the Middle East in partnership with Dubai South. These types of deals appear to be slowing as corporate companies tighten real estate budgets. While large warehouses of 200,000-300,000 sq ft are being looked at particularly by those who wish to keep Dubai as their distribution centre, there still remains a reluctance among firms to sign preleases and/ or enter into turnkey solutions. The emphasis should therefore be for developers with industrial land secured to take on a more speculative approach and those willing to take on this risk will reap the rewards.

Capital values and lease rates

While capital values have declined over the last 12 months, rents have  only begun to witness declines since January. Ambient warehousing and industrial average building lease rates in Dubai range from Dh20- Dh40 per square foot (excluding taxes) per year on average, with select units in Dubai Airport Free Zone Authority going as high as Dh90 per square foot per year.

Meanwhile, capital values in areas such as Dubai Investments Park (DIP) have remained relatively high due to finite supply of land, which has created value in leasehold assets. End users or developers wishing to acquire land in DIP will still need to pay a premium (key money) based on plot area, to an existing leaseholder to acquire the leasehold interest. Sales rates in designated industrial zones in Dubai range from Dh150-Dh500 per square foot, with free zones traditionally being on the lower end (due to supply) and areas such as DIP, Al Quoz and Umm Rammol commanding higher rates.


In line with the general economy, the real estate market is expected to improve with prices gradually increasing as the World Expo nears. However, the exact percentage increase for certain areas is difficult to predict at the moment. We expect lease rates for warehouses to remain largely stable until mid next year, but with demand increasing.

Government policies have focused on the industrial segment, which will be boosted by these growth initiatives. The government has placed emphasis on relocating tenants from older industrial areas to newer ones.

Activities in the sector bode well for foreign and local real estate investors who can benefit from diversifying their asset base to include industrial units that offer higher returns than traditional asset classes such as residential.

Source: Andrew Love, Special to PW


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