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UAE industrial and logistics market records signs of fragmentation in first half 2016

UAE. The UAE industrial market has continued to show a relatively steady performance despite the emergence of economic headwinds, amidst on-going global uncertainty, according to the H1 2016 UAE Industrial & Logistics MarketView, by global real estate consultancy firm CBRE.

The softening of crude oil prices over the past 18 months has had mixed effects on the UAE industrial sector, and on the markets in Dubai and Abu Dhabi.  This is largely due to the differing economic drivers of the two Emirates, with Abu Dhabi driven primarily by the oil & gas sector, whilst Dubai’s is more diversified and reliant on the import-export market.

Mat Green, Head of Research & Consulting UAE, CBRE Middle East, said, “While enquiries from downstream and upstream petroleum companies and its allied sectors have dropped away in recent quarters, this drop has been balanced by enquiries from international occupiers, which have remained relatively steady during the same period.”

The UAE government has expressed interest in non-oil & gas revenues and aims to raise the industrial sector’s contribution to around 20% by 2020, as it strives to further diversify the national economy to limit the negative impact of future fluctuations in the hydrocarbon sector.

Dubai Market

Dubai continues to solidify its position as an important staging post for the fast growing economies in Africa and West Asia, offering occupiers superior infrastructure and supply chain facilities. Whilst oil makes little direct contribution to Dubai’s economy, the falling oil prices have still diminished consumer and investor confidence, with the overall average rental rate for warehousing within CBRE’s basket of industrial locations, remaining flat in the past 12 months.

According to the H1 2016 UAE Industrial & Logistics MarketView, this is driven by a lack of high quality warehousing supply, constraining occupier movement, with low vacancy levels in this segment reflecting sustained demand for well-located and high quality facilities, such as Jebel Ali Port and Dubai International Airport (DXB).

“Dubai’s position as a global integrated logistics hub has already been enhanced by the bonded transport and logistics corridor from Jebel Ali Free Zone Authority (JAFZA) to DWC, which gives international occupiers the facility to bulk break goods arriving in Jebel Ali Port and then send them via air freight from DWC airport potentially within 3 – 6 hours,” commented Green.

With this hub status, JAFZA has witnessed year-on-year increase of around 3%.  Warehouses or LIU’s from JAFZA (in the primary market) currently have less than 5% vacancy rates, underlining the strength of the market. JAFZA also has a very active secondary market, with an increase in properties available for sub-lease and sale.  This has in part been led by declining capital values, which have fallen by close to 15% year on year for class 1 industrial assets.

Whilst overall demand levels have remained steady during the first half of 2016, there has been a noticeable increase in demand for warehousing facilities from the food and beverage sector, as well as global fashion / retailers, while global automobile majors continue to show demand for creating regional hubs within free zones for training, research centers and regional parts storage hubs.

Abu Dhabi Market

With 49% of GDP contributed by the hydrocarbon industry, Abu Dhabi’s industrial market is heavily linked to the oil and gas sector. As a result of prevailing lower oil prices and the reduced investment in oil exploration, demand from downstream and upstream petrochemical companies has reduced significantly over the past 18 months.  Cost-reduction measures are also noticeably in force with curbs on non-essential spending.  Occupiers, particularly in the oil & gas sector, have been evaluating the possibility of sub-leasing and selling excess capacity wherever possible to help streamline operations.

Reflective of the economic backdrop, the total number of industrial enquiries has reduced year-on-year.  Oil & gas companies, construction, and light industrial sectors each had 20% of the enquiries, with the balance 40% from pharmaceutical companies as a result of government regulations and more stringent storage standards from the manufacturers.

“Good quality industrial accommodation remains in short supply across the entire industrial market in Dubai, whereas Abu Dhabi has successfully leased their first Business Hub and KIZAD, with the second phase of the respective scheme expected to be delivered in H2 2016, although Phase 2 (64) of KIZAD’s logistics units are currently available for pre-leasing,” commented Green.

Market Outlook

Despite the emergence of economic headwinds, the industrial and logistics sector in Dubai is expected to remain relatively resilient in the face of weakening supply from oil and gas occupiers.  However, CBRE expects to see a two-tiered market emerge, with prime and high quality industrial spaces outperforming the wider market, maintaining rentals and encouraging further tenant migration, whilst inferior products and aging and secondary locations are likely to face a period of declining rentals and rising vacancy rates.

With a greater reliance on the oil and gas sector, market rents in Abu Dhabi are expected to decline further, with an increase in vacancy rates also likely amidst the delivery of new supply across major industrial locations.

Photo caption: Mat Green, Head of Research & Consulting UAE, CBRE Middle East,

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue).  The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide.  CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. 

Please visit our website at www.cbre.ae

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