Gulf companies are channelling more of their investments into the construction of mega warehousing facilities, lured by the buoyancy in the region's logistics sector.

With the Middle East region positioning itself as a global logistics hub given its strategic location between the West and Far East, investors foresee healthy returns on investments within the logistics industry.

Industry players estimate that an average of $50 billion (Dh183.65bn) will be invested in the construction of warehouses in the Gulf in the next two years, a move that will also help to ease the current capacity pressure in the warehousing sector.

"The courage to invest in warehousing facilities is growing by the day given the strong returns within the logistics industry," said James Walsh, general manager of Qatar's Gulf Warehousing Company (GWC). "We can only see more investments being channelled in this sector in the coming years."

GWC, a public company listed on the Doha Securities Market, is in the process of constructing Logistics Village Qatar (LVQ) at a cost of QR1.80bn (Dh1.82bn) and also developing Qatar's Mesaieed industrial facility at a cost of QR70 million.

LVQ will be the regional hub for logistics services, spread over an area of one million square metres with 26,000 sq m of freezer warehouse and 18 utility buildings. It will also feature 126 units of small- and large-scale warehouses, truck parking, operation yard, container yard, open storage, auction facility, main administration building, car storage facility and other logistics-related services.

The total area in the Mesaieed project is 60,802 sq m, of which 26,000 sq m is planned for warehousing.

"The LVQ and Mesaieed projects will help to provide the much needed capacity to support the fast-growing logistics industry in the region," said Walsh. "With the population growing and the volume of international trade increasing, we see more opportunities within the logistics sector."

GWC is planning massive investments in the region as part of its expansion programme and has hinted at raising funds, including through rights or private placement. The company, which was created in 2004, recently reported a net profit of QR1.80m in the first six months of 2008 on a five-fold jump in operating profit and substantial reduction in rental expenses.

In the UAE, Gazeley Limited, the company that has been acquired by Economic Zones World (EZW), a subsidiary of Dubai World, at a cost estimated between $588m and $784m, is establishing itself in the region as one of the best providers of sustainable logistics space. The company is already in high-level talks with some regional and international logistics companies about setting up warehousing projects for them in the region.

"We have evolved through building and selling storage facilities to companies that need them. We are introducing the same concept in the region because we see a strong need for warehousing facilities," said Patrick McGillcuddy, CEO of Gazeley Limited.

While EZW constructs warehouses for its own use and for rental purposes, it will blend its business model with that of Gazeley to provide the best warehousing solutions in the region.

Gazeley Limited is just one of the many companies in the UAE that are interested in building warehouses for purposes of selling them to end-users. Property developers in the UAE are currently channelling massive investments into the construction of warehousing facilities especially in Dubai, Sharjah and Abu Dhabi.

According to Andrew Chambers, managing director for Asteco Property, the appetite for developing warehouses is high among investors but he added that the availability of land is still a challenge.

"Any forward looking investor is clearly putting a sizeable percentage of his money into warehousing as the demand for them increases," said Chambers.

While new investments are partly driven by profitability, industry players believe they will help to ease the shortage of warehouses.

Martin Palmer, director of Contract Logistic at Al Futtaim Logistics, believes the shortage of storage space will ease in about a year's time. "I cannot say the problem will disappear this year. However, there are all indications that the shortage problems will ease in the coming year as many warehousing projects get completed," he said.

Investments in commercial initiatives, such as Dubai Logistics City, Dubai Investment Park and Dubai Industrial City, Bahrain Logistics Zone and King Abdullah Economic City in Saudi Arabia, are innovations by Gulf governments to ensure enough storage facilities.

The demand for warehouses has been rising for the past three years, resulting in increased rental costs. The average rental price per cubic metre of space currently in Dubai is 80 fils per day – up from 40 fils per day at the beginning of this year.