Dubai industrial rents soar as demand rises: Report

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Industrial rents in Dubai have risen sharply over the last 12-months as demand continues to outstrip supply, according to a report by real estate consultancy Knight Frank.

On average, warehouse lease rates continue to escalate across Dubai, specifically Grade A rents in Al Quoz which increased by 57 percent during 2022.

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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, head of Middle East Research at Knight Frank, said: “The industrial market in Dubai is a thriving sector that plays a key role in the emirate’s economy, accounting for c. 60 percent 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 percent.”

“This can in large part be attributed to the government’s decisive response to the pandemic, which has underpinned business confidence. This positivity has in turn fuelled an increased number of new industrial market entrants, specifically the manufacturing sector which now accounts for 36 percent of the 12.2 million square feet 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.”

Knight Frank highlights factors such as the strategic location of the UAE, world-class infrastructure, pro-business policies, economic stimulus and e-commerce trends, that continue to make the UAE a world-class destination for industrial and manufacturing occupiers.

Furthermore, the 100 percent foreign ownership law continues to make it possible for businesses to fully own and operate in the city’s well-established free zones without an Emirati partner and this is attracting international manufacturers not previously present in Dubai.

Adam Wynne, associate partner and co-head of industrial and logistics UAE, Knight Frank, said: “2022 was another strong year for the UAE’s industrial and logistics sector as the market continues to evolve & 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.”

Investment activity

Lease structures continue to hold the investment market back from realising its full potential, says Knight Frank.

Andrew Love, head of Middle East capital markets and occupier services and commercial Agency, Knight Frank, said: “We continue to see 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.”

“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.”

Abu Dhabi ‘more stable’

The picture in Abu Dhabi is more stable, with warehouse rents in the six main markets tracked by Knight Frank remaining unchanged during 2022.

Rates in Abu Dhabi Airport Free Zone are still the most expensive in the city. 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 in Abu Dhabi such as KEZAD did not experience any change in rents as demand remains steady.

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