Demand for industrial property in Dubai weakens

Demand for industrial property in Dubai is weakening as the real estate slowdown extends from homes to warehouses.

The latest Industrial Market Bulletin from Cluttons found that activity in the sector has “curtailed”, despite it previously being one of the most resilient parts of the property market over the past two years.

The value of industrial property has dropped across the board, falling by as much as 20 per cent for certain types of stock in areas such as Jebel Ali Free Zone Authority (Jafza), where tenants are leaving behind cheaper secondary space in Jafza North in favour of newly-built units in Jafza South.

Rents are also under pressure as a result of much more warehouse stock being built. Although Class A rents for the higher quality stock are generally holding up, new completions have placed pressure on rental values in secondary spaces. For instance, Class B rents have dropped by 24 per cent in Al Quoz to Dh38 per square foot, and by 14.3 per cent in Jafza to Dh24 per sq ft.

“Aside from a natural cyclical correction that was inevitable in the industrial market, a surge in newly completed warehouse space over the last year or two has prompted a flight to quality among existing occupiers, creating a growing pool of more secondary space, which is slow to let,” said Faisal Durrani, head of research at Cluttons. “This is driving a growing gulf in rents between older stock and state-of-the-art, modern warehouse facilities.”

He said that while he expects weakness in the market to “linger” for the remainder of 2017, there are some opportunistic investors who are taking the opportunity caused by sliding prices in secondary markets to pick up cheaper space.

Murray Strang, the head of Cluttons Dubai, said: “Despite the sluggish conditions, we continue to record an interest from international occupiers trying to gain a foothold in the market as they still view Dubai as the primary gateway to the Middle East and Africa. In particular, logistics and distribution centres remain popular among retailers and food and beverage occupiers, buoyed by the strength of Dubai’s tourism & hospitality market.”

The firm said demand for logistics and distribution space has compensated for weakness in other industrial markets, with many occupiers moving into purpose-built space. Carrefour, for instance, has recently taken an 800,000 sq ft distribution building, while Landmark, Mohebi Logistics and Aramex are also building their own centres.

“We expect logistics and distribution assets to continue to perform well over the course of the year,” said Mr Strang.

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