Average industrial unit rents in Abu Dhabi are around 25 to 30 per cent higher than Dubai despite the latter being at the forefront of the industrial market across the Middle East and North Africa (Mena) region, according to a new report.
“Abu Dhabi average industrial unit rents are around 25 to 30 per cent higher than Dubai, driven primarily by the higher industrial rent rates in Mussafah. In the medium to long-term better quality product, integrated developments and more advanced infrastructure will be required to attract sophisticated tenants and create investment grade product,” Jones Lang LaSalle said in the Mena industrial report.
There is currently a total of approximately 16.5 million square metres of industrial space in Abu Dhabi, comprising two major industrial areas including Mussafah, which is older and more developed, and Industrial City of Abu Dhabi (ICAD), which offers large amounts of currently undeveloped industrial land.
In November 2010, the Abu Dhabi Ports Company received approval to establish the Khalifa Industrial Zone Abu Dhabi (KIZAD) which will be the first industrial free zone in the area, and is strategically located halfway between Abu Dhabi and Dubai. Khalifa Port will be the development’s flagship and is surrounded by industrial land estates as an effort to stimulate industrial activity, especially foreign investment. KIZAD is expected to be operational by the fourth quarter 2012 and by 2030, is expected to contribute 15 per cent to Abu Dhabi’s non-oil gross domestic product.
Dubai is home to nearly a dozen industrial areas and currently has approximately 65 million square meters of industrial stock, comprising two distinct submarkets that are defined as free zones (with 100 per cent ownership being the primary advantage) and non free zones. The free zones contribute approximately 27.5 million square meters of stock to the total, while the remaining 37.5 million square meters is in the non free zone areas.
Older areas in Dubai are able to achieve nearly full occupancy, largely because of their early establishment during Dubai’s period of prime economic growth.
“A shift towards the newer industrial areas is likely over the medium term because of several factors such as better infrastructure systems, better quality real estate products and proximity to major infrastructure projects. This could also potentially be facilitated by legislation,” the report said.
Rental rates in Dubai currently vary significantly from one area to another, mostly because there is no real standardisation of logistics facilities. Higher rental levels are found in some of the older and more established areas, despite their congested nature and the poorer quality of premises available. This is primarily because they benefit from proximity to their base markets and customers.
According to JLL, light industrial/logistics will be one of the best performing sectors of the realestate market across Mena over the next few years.
“This sector has not witnessed the same level of speculative construction as the residential, commercial and hotel sectors of the market. There remains strong underlying demand for quality light industrial and logistics units. This demand will be enhanced by continued investment in major new transport infrastructure including seaports, airports and important new rail initiatives across the GCC.”
Real estate markets across Mena will see a significant shift in emphasis over the next few years, with far greater attention being focussed on the light industrial/logistics market. This is consistent with government initiatives to expand the volume of trade, which forms an integral component of efforts to diversify the region’s economic base from the oil and gas sector.
“Given its strategic significance to the overall economy, the light industrial/logistics market has been tightly controlled by individual governments in the Mena region. While there are increasing opportunities for private sector investment in this sector, the barriers to entry remain higher than in other sectors of the real estate market,” authors of the report said.
There has also been increased interest in this sector from a range of regional and international investors and developers over the past two years. Despite the difficulties in accessing this market, Jones Lang LaSalle expects this interest to be reflected in higher levels of sales activity in this emerging class.
“Investor interest is likely to be strongest for those properties securely leased to major international occupiers on long-term leases. The light industrial/logistics market offers more opportunities for investors looking for secure, long-term income producing assets than other sectors of the real estate market,” the report added.