Demand for Industrial and Logistics Assets in Dubai and Abu Dhabi Surges 185%: Knight Frank Report

RIYADH: A new report by Knight Frank reveals that the demand for industrial and logistics assets in Dubai and Abu Dhabi has surged dramatically by 185% year-on-year, reaching an impressive 18 million square feet in the first half of 2024. This surge in demand is a significant indicator of the sector’s robust performance and evolving market dynamics.

Significant Increase in Rental Rates

The industrial real estate market in Dubai has experienced notable changes, particularly in the Jebel Ali Industrial Area Second Category. Rental rates in this area have surged by 38.5%, now standing at 36 dirhams ($9.80) per square foot. This substantial increase reflects the high demand for industrial spaces and the competitive nature of the market.

Key Sectors Fueling Growth

Several key sectors are driving this surge in demand for industrial and logistics assets. Manufacturing leads the charge with an 11.7% share of the total demand. Following closely are the construction sector, accounting for 11.1% of the demand, and the logistics sector, which makes up 10.2%. Collectively, these sectors represent one-third of the total demand, illustrating their significant role in the industrial real estate market.

Dubai’s Strategic Vision for 2030

The increase in industrial and logistics asset demand aligns with Dubai’s Commercial and Logistics Land Transport Strategy 2030. This strategy aims to double the sector’s direct contribution to the emirate’s economy, targeting a contribution of 16.8 billion dirhams by the end of the decade. The strategy includes several ambitious goals: increasing technology adoption within infrastructure by 75%, reducing carbon emissions by 30%, and improving operational efficiency by 10%.

Market Insights from Knight Frank

According to Maxim Talmatchi, Associate Partner and Co-Head of Industrial & Logistics for UAE at Knight Frank, the industrial and logistics market in the UAE demonstrates robust fundamentals. The sector is characterized by strong demand, minimal vacancies, and a promising pipeline of upcoming projects. This positive market outlook has attracted institutional investors from major global markets, including the US, China, and Europe. These investors are drawn by the sector’s attractive yields, which average around 8.25%.

Urgent Need for High-Quality Space

Mikhail Vereshchagin, Knight Frank’s Associate Partner for Industrial & Logistics in the UAE, highlighted the urgent need for new high-quality industrial and logistics developments, particularly in Dubai. The current shortage of premium industrial spaces underscores the necessity to address this gap to support Dubai’s ambition of becoming a global industrial hub.

Future Supply Projections

The Knight Frank report provides insights into future supply projections for industrial and logistics assets in the UAE. In 2024, the report anticipates a total of 660,000 square feet of new supply. This includes 360,000 square feet in the Jebel Ali Free Zone and 300,000 square feet in Dubai Industrial City. Additionally, 2025 is expected to see a further 1.3 million square feet of new supply across various locations, including the National Industries Complex, Dubai South, and Dubai Investments Park 2.

Growing Investor Interest

David Simons, Founder and CEO of UAE-based Radius Group, emphasized the growing trend in demand for high-quality, operationally efficient logistics and warehousing spaces. This growing interest reflects the sector’s evolution and the increasing need for sophisticated industrial solutions.

Performance of KEZAD Group

The Khalifa Economic Zones Abu Dhabi (KEZAD) group, which represents 55% of the UAE’s industrial supply, has reported strong performance. Occupancy rates in KEZAD reached 88% in the first quarter of 2024. General warehouse rents within KEZAD’s 12 economic zones range from 320 to 450 dirhams per square meter. Cold storage rents range from 350 to 550 dirhams per square meter, indicating a stable and competitive market.

Trends in Lease Commitments

Mohamed Al-Ahmed, CEO of KEZAD Group, noted a trend toward longer lease commitments. The average lease length has increased to nearly 6 years, compared to around 4 years in 2022. This shift towards longer leases signifies a preference for long-term stability and security in the industrial real estate market.

The dramatic surge in demand for industrial and logistics assets in Dubai and Abu Dhabi underscores the sector’s growth and its crucial role in the region’s economic development. The market’s evolving landscape presents opportunities for stakeholders to adapt and capitalize on emerging trends. As highlighted in the Knight Frank report, the future of the industrial real estate sector in the UAE looks promising, driven by strategic goals and increasing investor interest.