Industrial Sector Demand
The UAE has seen a strong rebound from the market lows of the pandemic across all sectors and the industrial market has continued this upward trend throughout 2023.
The robust handling of the pandemic by the government, coupled with a number of strategic policies has consolidated the UAE as a regional logistics and distribution hub. These policies, when combined with reliable infrastructure, has led to high levels of demand for industrial accommodation, the reduction in vacancy rates and in turn, an increase in both rental and capital values across the key industrial communities in Dubai.
Government Policies
The Comprehensive Economic Partnership Agreements (CEPAs) are an economic objective to increase trading with international partners by improving procedures, lowering tariffs and providing transparency. The first trade agreement was signed on 18 February 2022 with India and the UAE has to sign similar agreements with Israel, Indonesia and Turkey. It is expected that trade with India could hit $USD100 billion within five years. Further talks with Malaysia and Thailand were announced in the May 2023. These agreements seek to target the emerging markets in Asia.
In addition to international trade partnership, the UAE continues to revise the traditional ownership restrictions found outside of the free zones. The ability for foreign businesses to be fully owned without the necessity of an Emirati partner has removed the key barrier for entry for a number of international business and has further driven demand in the UAE.
Demand Drivers
According to several reports, the key demand drivers within the industrial market came from manufacturing, logistics and E-commerce. Most of the current demand is associated with existing occupiers seeking to expand current operations.
The UAE has traditionally been a strong manufacturing hub due to reliable infrastructure, steady government investment and government agendas that are in place to help support the growth of the economy. The Operation, ‘300bn Initiative’ seeks to increase the contribution that industrial & manufacturing has to the GDP in the UAE to AED 300bn by 2031. Currently, the manufacturing sector represents about a third of the current industrial demand.
Logistics and the oil and gas sector have always been a key part of the UAE industrial landscape and these sectors have now been joined by E-commerce as a key part of the market. It is expected that E-commerce will account for over 40% of global retail sales by 2027 and the UAE is no exception.
The E-commerce model requires a larger facility with a number of smaller ‘last mile’ facilities located in more central areas for speed of delivery. For international brands, the substantial central warehouse often requires international specifications which are not readily available. With both an increase in the online shopping trend and an expanding population, the E-commerce sector will continue to drive industrial demand in the UAE.
Whilst the UAE is hosting the COP28 event, the country still intends to increase oil production to meet the growing demand with the five million barrels a day, a target revised from 2030 to 2027. Although Dubai has a relatively diverse economy, oil and gas still accounts for a significant proportion, and the plans to increase production serves to increase demand in one of the key sub sectors of the industrial asset class.
Due to the above factors, all of the key industrial communities (both on and offshore) have seen a notable increase in rental values. The secondary Grade B market has seen further increase due to the lack of high-quality Grade A accommodation. This has subsequently led to an increase in construction activity to rectify the lack of good quality stock.
For Industrial related enquiries please contact Timothy Hooper at Real Estate X, ([email protected]).
