Knight Frank report says proportion of the current stock within both Abu Dhabi and Dubai's market is no longer fit for purpose
Jebel Ali Free Zone (Jafza) and Dubai Investments Park (DIP) are bucking a subdued industrial sector with rent increases of 16.7 percent and 6.7 percent respectively over the past year, according to a new report.
Knight Frank said the tepid global and national economic backdrop has put pressure on industrial real estate in Abu Dhabi and Dubai.
This is as a result of businesses which operate in this area succumbing to weaker business and consumer demand, which has struggled to show meaningful signs of growth despite the resurgence in oil prices, it said.
It added that a reasonable proportion of the current stock within both Abu Dhabi and Dubai’s market is no longer fit for purpose for new entrants demanding the latest technology to drive sectors such as e-commerce.
Knight Frank said that despite the performance of some Grade A stock in Jafza and DIP, grade B stock across the UAE's industrial and logistics zones has seen the most significant fall in achieved rents over the course of the 12 months to Q1 2018.
In Abu Dhabi, similar trends have been seen with locations such as KIZAD and Al Markaz remaining resilient relative to the wider market, albeit with rental rents still softening over the last year.
Knight Frank said it has also witnessed a flight to quality with some occupiers using the slower market to negotiate favourable terms which during previous cycle may not have been within their price range.
Matthew Dadd, partner, Occupier Solutions Commercial Agency, Knight Frank, said: “Due to the opening up of markets in the region, the industrial and logistics sector is becoming more competitive than ever.
"Therefore respective authorities must now carefully analyse the implications of fees such as set-up fees, governmental fees, visa costs and ports and customs fees. The culmination and significance of these costs will have a marked impact on the final decision for multinational firms.”
Tom Swallow, partner, Occupier Solutions Commercial Agency added: “The bulk of existing facilities for many new entrants are no longer fit for purpose. As more sophisticated businesses decide to enter the market we have seen the requirements for industrial and logistics real estate change rapidly.
"Much of the existing stock is either below par in terms of quality, is made up of smaller multi-tenant units, lacks connectivity and the dual licence structure – which is vital for industries such as e-commerce.”
As part of the UAE’s economic diversification plan UAE Vision 2021, Abu Dhabi Economic Vision 2030 and Dubai’s Industrial Strategy 2030, the development of the industrial sector is seen as a strategically important goal for sustained long term success of the national economy.