According to a top real estate services firm, demand for industrial and logistics space in Dubai reached an all-time high in the first half of 2023, primarily as a result of businesses moving their operations there from other cities.
The near-shoring trend that many companies have adopted was also a reason for this demand surge, according to Savills. “There was also a spike in demand for logistics and industrial space due to the surge in local manufacturing, which is due to the UAE’s industrial strategy dubbed Operation 300bn, which aims to boost the country’s industrial sector, establish the UAE as a global exports and re-exports hub, and create new job opportunities,” said the report.
Market statistics indicate that industrial rents in Dubai have dramatically increased over 2022 as demand has continued to outpace supply. In Dubai as a whole, warehouse lease rates climbed on average; in particular, Al Quoz Grade A rents rose by 57% in 2022. According to sources, Dubai’s industrial submarkets all saw significant rent increases in 2022.
Oil and gas firms, e-commerce enterprises, contract logistics providers, and indoor farm operators were the main demand generators for warehouse leasing activity in H1 2023 in Dubai, according to Michael Fenton, director of Industrial & Logistics, Savills.
Fenton said the e-commerce sector was another significant driver of demand during H1 of 2023. Hub-and-spoke delivery channels are gaining more popularity among e-commerce enterprises. “It is a highly popular concept in developing markets, and we are beginning to witness this trend in Dubai as well. The model calls for the construction of a large “mother” warehouse close to key infrastructure, such as a port, followed by a smaller delivery facility or “last-mile” storage location. The increased use of smaller-sized units closer to the city is partly due to the quick delivery platforms’ rising popularity.”
Every 1% increase in population will result in a 0.5 % increase in the need for warehouse space in Dubai, which will continue to be driven by the e-commerce industry.
Savills noted that another key factor in driving the demand was the third-party logistic companies. “For example, J&T Express, an Indonesian delivery giant, significantly ramped up its operations across Dubai and currently leases circa 161,000 sq. ft. of space across Dubai Industrial City, Dubai Airport Freezone, and Dubai South, with plans to further increase its warehousing space to 430,000 sq. ft. by 2026.”
According to the research, oil, and gas businesses are among the biggest users of warehouse and industrial space nationwide. The UAE is anticipated to invest close to $150 billion by 2027 to increase oil output.
The UAE-India Comprehensive Economic Partnership Agreement (Cepa), as well as the UAE’s plans to extend it to Israel, Indonesia, Turkey, and Colombia, are all contributing to a buoyant occupier market. “Thanks to the emirate’s strategic location, the China Plus One strategy, and the close economic ties between China and the UAE, Dubai has benefitted from Chinese companies setting up shop in the city by leasing space to manufacture and export to nearby GCC and African countries,” Savills report said.
Swapnil Pillai, associate director of Middle East Research at Savills, said leasing activity was concentrated across prominent non-bonded warehousing hubs such as Al Quoz, DIP, and NIP. “Vertical farm operators, companies from the retail and leisure sectors, as well as e-commerce and FMCG players, were the notable occupiers of space,” he added.
The Jebel Ali Free Zone Authority (Jafza)’s capacity and demand for warehousing have also grown significantly, according to the report. The close economic linkages between India and China have helped the submarket. The Freezone announced that new client registration was up 30% year over year. In 2022, the number of Chinese businesses operating in the free zone climbed by four times, while the number of Indian businesses increased by 30% year over year.