Cluttons in Dubai: Healthy growth within Dubai industrial and logistics sector Q1 2013

Cluttons continues to see healthy growth within this sector with a steady demand from new businesses entering the market and renewed confidence amongst existing players.

Cluttons notes modest growth in rental prices over the past six months, especially outside free zone areas, where building supply is limited.

In these areas, there is a trend for tenants to take up large pieces of land and build their own units.

Activity is currently concentrated in two main non-free zone areas, Dubai Industrial City (DI) and Dubai Investment Park (DIP). Dubai Industrial City is generating momentum and has reported occupancy figures of over 80% for seven million square feet of warehousing and leasing figures of 9.8 million square feet of land plots in Q1 2013. The majority of demand has been driven from the automotive, base metal and food sectors.

Dubai Investment Park has maintained its popularity, registering an increase of over 80% in commercial space allotments over a total leased area of 1.6 million square foot over the past six months. Cluttons is aware of several 32,000 to 86,000 square foot warehouses being developed that have been sold and leased off-plan.

A key driver for the area has been the success of long-term leasehold interests with investors and occupiers, which are being offered for up to 85 years. This movement is expected to contribute to the expansion of Dubai Investment Park throughout 2013 and beyond.

Supply and demand in the free zone market has remained steady and this will most likely continue throughout 2013. In 2012, Jebel Ali Free Zone (JAFZA) witnessed continued growth in the number of new company registrations, with over 450 new companies joining the zone. This is an impressive increase of 26% on the previous year.

Capital values for prime warehouse facilities in JAFZA have remained stable, being between AED 170 to 200 per square foot and sub-lease rents commanding AED 22 to 30 per square foot per annum. Dubai World Central (DWC) has also seen steady demand for facilities and plots and could see a further increase in demand, with reports that cargo volumes increased in 2012 by over 140%, when compared with volumes from 2011.

Looking forward, Cluttons believes that this healthy demand will continue throughout the sector in Dubai. As a result, the majority of the larger (32,000 square foot and above), stand-alone, modern facilities could be absorbed. As a result, we could see gentle rental and capital growth for these types of buildings as well as an increased demand for build-to-suit projects. The Dubai industrial and logistics sector clearly has improved, and will continue to improve as demonstrated by strong rents.