Mena light industrial/logistics real estate poised for growth

Trade-focused initiatives by local governments will see light industrial/logistics emerge as one of the best performing sectors in the real estate market across the Middle East and North Africa (Mena) region over the next few years, Jones Lang LaSalle (JLL), a real estate advisory firm, has said in its latest report on the sector.

“Real estate markets across Mena will see a significant shift in emphasis over the next few years, with far greater attention being focused 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,” Craig Plumb, Head of Research, JLL Mena, said in the report.

“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,” Plumb said, adding that this demand will be enhanced by continued investment in major new transport infrastructure including seaports, airports and important new rail initiatives across the GCC.

However, he added in the JLL report that the sector remains dominated by the respective governments. “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,” Plumb said.

“There has 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, JLL expects this interest to be reflected in higher levels of sales activity in this emerging class,” the report added.

“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,” it said.

According to JLL, based on the four key drivers of occupier space selection for industrial real estate – total operating costs, location, infrastructure and quality of real estate product – Dubai is at the forefront of the industrial market in the region, and is home to nearly a dozen industrial areas.

The advisory ranks it as the most developed of the regional markets, followed by Abu Dhabi, Riyadh, Cairo and Jeddah, in terms of industrial real estate development.

JLL reckons that there is currently 65m sq m of industrial stock in Dubai, 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 27.5m sq m of stock to the total, while the remaining 37.5m sq m is in the non free zone areas, JLL said.

“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,” it said, adding that this could also potentially be facilitated by legislation.

“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,” the JLL report said.

It added that industrial rentals ranged between Dh250 and Dh600 per sq m in Dubai depending on location, while they range between Dh350 and Dh550 per sq m in Abu Dhabi.

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