Savills, a global real estate services provider, revealed today that the first half of 2023 had the strongest demand on record for industrial and logistical space in Dubai, as per the Dubai Industrial Market in Minutes H1 2023. The report had also shown that the continued growth since 2020, saw a high demand for logistics and industrial space that was mainly driven by companies relocating their operations to Dubai from another emirate, followed by the near-shoring trend that many companies have adopted.

Sectors in Focus

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.

Michael Fenton, Director, Industrial & Logistics, Savills, said “Oil and gas related companies, e-commerce operators, contract logistics, and indoor farm operators were the prominent demand drivers for warehouse leasing activity in H1 2023 in Dubai”. 

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. The e-commerce sector will continue to lead the demand for warehouse space in Dubai, with every 1% rise in population requiring an additional 0.5% of warehouse space.

Another notable 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.

Oil & gas companies were also among the top occupiers of warehousing and industrial space across the country. By 2027, the UAE is expected to spend close to USD 150 billion to boost its oil production capacity.

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.

Locations in Demand

“Leasing activity was concentrated across prominent non-bonded warehousing hubs such as Al Quoz, DIP, and NIP.”, Swapnil Pillai, Associate Director, Middle East Research at Savills, commented. “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.

There has also been a significant increase in warehousing capacity and demand across JAFZA. As previously mentioned, the sub-market has benefited from the close economic ties between India and China. The Freezone has reported a 30% y-o-y increase in new customer registration. The number of Chinese companies operating out of the free zone has increased by four times in 2022, while the number of Indian companies has grown by 30% y-o-y. To keep up with the growing demand, the free zone has launched close to 500,000 sq. ft. of international quality space, due to be completed by 2025. With this increase in customers for JAFZA, there is considerable competition for both existing ready-built stock and development land.

Another important micro-market that has seen a large increase in occupancy is Dubai South’s industrial zone, as it has plenty of land offering bonded, non-bonded, and dual bonded opportunities for developing warehouse facilities. During the first half of the year, Amazon was among the main corporations that leased space within the free zone. The existence of numerous e-commerce firms, its EZDubai initiatives, and the consistent supply and development of several residential projects around the submarket contribute to its long-term growth. The micro-market is poised to maintain its growth and position as a major centre in the UAE and the wider Middle East market.

Rental Price Increase and Upcoming Supply

Rental values have continued to rise across a variety of submarkets as leasing activity and inquiry levels have increased. In a half-year comparison, rental values for Grade A properties climbed by 14% on average in National Industries Park, 8.6% in Dubai Investment Park, and 8% in Al Quoz. Grade A warehouse rents in Dubai South climbed by 7.1% on average and by 6.7% in Jebel Ali Industrial. Due to the scarcity of Grade A stock, rental rises in Grade B stock were prevalent in most micro-markets. The largest rise in Grade B developments was seen in Al Quoz, at 37.5%, followed by National Industries Park at 11.1% and Dubai Investments Park at 6.7%.

The city's availability of logistical and industrial space has increased in response to demand. Nearly a million square feet of supply is now under construction in JAFZA, Dubai South, DIP, and NIP.

Read the fill research HERE