Industrial and manufacturing real estate in Dubai is hitting record growth, driven by the emirate’s fast emergence as the regional – and even sub-continental – headquarters for a variety of global businesses and organisations, industry experts said.
Smaller businesses from around the world seeking to tap the fast-growing markets of the UAE – as well as the greater Middle East – is also adding to the surge in demand for manufacturing and industrial properties.
The influx of new and expanding industrial units is also leading to the thriving of a host of ancillary ventures providing warehousing, scaffolding and design services, propelling significant growth in Dubai’s – as well as the UAE’s – non-oil sector, besides generating new job opportunities.
The spike in demand, however, is leading to an upsurge in real estate prices and commercial rentals, threatening to push up capital and operational costs for setting up industries and operating manufacturing facilities in Dubai.
The emerging situation has led to some sane voices in the sector strongly advocating for the formulation of a viable partnership model between real estate companies and company promoters to pre-empt the situation snowballing into a deep crisis.
“The rising real estate prices do create a dilemma in the minds of investors and company promoters about what to predict in the near and medium-term future,” Sumit Pathak, CEO of Linus International FZCO, a leading player in providing ancillary services to companies, told Arabian Business.
“We anticipate continued strong demand for the next five years as more projects continue to be launched,” he said, indicating that real estate prices could see further rise going forward.
Pathak, however, said rising real estate prices, although a large contributor to the fixed costs of a manufacturing enterprise in the UAE, is still not the biggest driver or contributor to the costs it suffers.
Lack of attention could compound real estate-related issued for manufacturing sector
Some of the city-based management experts said the problem arises also on account of the fact that manufacturing industries are not getting the required attention they deserve.
“From a real estate perspective, the situation could get increasingly challenging for international companies and those entering this [Dubai’s and also the UAE’s] market with the intent to locally manufacture if not addressed constructively,” a Dubai-based management expert, who wished not to be identified, said.
“The higher real estate and rental prices, along with rising energy costs and the prospect of greater taxes could be challenging for companies entering and planning to enter the country, he said.
Pathak said while residential real estate goes strong and follows predictable patterns, that is not the case with real estate for the manufacturing and industries sector.
This is despite the fact that there has been a flurry of international organisations from a variety of sectors moving into the UAE over the past few years, he said.
“One of our entities focuses largely on building warehousing for international clients such as traders and manufacturers who are seeking to establish their presence within the UAE.
“We are inundated with queries and interest from such companies as they actively explore the most attractive options to set up their local operations,” the Linus International top executive said, adding that “demand seems to be outstripping supply currently and this pattern will likely not change for the next 3 years.”
Sector experts said the rising trend of establishment and expansion of international and regional companies is bolstered by the UAE’s open market practices, transparent and breakneck speed government action, and the simplification of business practices within the UAE.
The legal system of the UAE has also been reformed tremendously in the last few years to make the UAE a more palatable global investment destination, they said.
Partnership model between real estate majors and industry promoters could be the answer
Sector experts and management advisors said the rising real estate prices could impact costs for setting up of manufacturing facilities in the UAE, and thereby extend the break-even period for them, if not addressed in a constructive way.
Pathak said without sacrificing the need for unmatched safety and security, developers in the UAE could offer unmatched opportunities to manufacturers by setting up a formal standardized structure from a contracting and execution standpoint to build investor confidence.
“Real estate companies can provide a stricter timeline, more transparent processes and systems, and seamless liaising with the relevant governmental authorities.
“With such measures, international and local investors will likely build more confidence in entering into joint venture agreements as they look at reducing their capital cost and leasing facility and space, rather than building a facility that induces risks and costs that only burdens their traditional operations,” he said.
Pathak, however, said though setting up joint ventures with real estate companies seems to be a mutually beneficial undertaking, prima facie, there could be challenges in its successful implementation due to time overruns on the part of companies for getting mandatory approvals.
“Projects in the UAE, specifically in the manufacturing sector, suffer from greater bureaucracy, scrutiny, and delays arising from technical reviews, approvals, and pre-execution requirements,” he pointed out.
Industry insiders, however, said that real estate prices in the industrial sector are rising, but not at the same pace as the residential sector.
This is, obviously, a region-specific argument as certain neighbourhoods become significantly more expensive due to over-saturation and others that remain affordable due to the availability of excess capacity, they said.
Furthermore, companies setting up manufacturing facilities in the UAE can choose from other emirates to launch their venture to enjoy much lower costs, while still tapping into the world-class infrastructure network to deliver internally or ship it out of ports like Jabel Ali, they added.
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