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UAE industrial activity set for steady 5-10-yrs growth
(Issac John) / 29 January 2011
DUBAI — Industrial activities in the UAE are likely to see steady growth over the next five to 10 years as the country’s focus slowly returns to the core economic sectors of aviation and industry, a leading commercial property and real estate services adviser said.
A move away from real estate and construction as a fundamental driver of the economy will see the economy shift towards more stable long-term growth areas that should provide an impetus for further expansion of the industrial sector, a report by CB Richard Ellis said.
The report said “subdued demand along with increased supply from within newer development areas in Dubai is expected to see a marginal decline in warehouse lease rates during 2011”.
However, current market conditions provide an array of investment opportunities in Dubai, “as lease and yield rates have become more attractive for investors who were previously dissuaded by high investment costs,” it said.
“Investment and lease costs for industrial and residential properties have now reached levels that were last experienced several years before the peak,” it said.
In contrast, warehouse properties in Abu Dhabi are likely to feel further strain in the short-term at least, as undersupply issues persist, As a result, the highest warehouse leasing rates are currently in Abu Dhabi, ranging between Dh440 and Dh1, 000 per square metre per annum, depending on location, size and quality.
The lowest rents are in Fujairah — between Dh150 and Dh180 per square metre per annum, the report said.
“In Dubai, occupancy and lease rates across all the industrial locations have dropped substantially over the past two years as new supply and weak demand have impacted market performance. With rising supply and weak demand in Dubai, lease and occupancy rates across all locations remain under downward pressure. Rates for good quality space now range between Dh225 and Dh430/sqm/pa, compared to Dh430 and Dh860/sqm/pa during the peak of 2008.”
The reported noted that amidst a testing market environment and heightened competition, some landlords are now absorbing 15 per cent warehouse taxes that are normally paid by tenants in order to secure longer lease commitments. Increasing incentives offered by landlords are the likely outcome of a prolonged period of oversupply.
In Abu Dhabi, at around 90 per cent occupancy rates warehousing rates are “appreciably better than any other industrial location in the UAE”.
Occupancy rates in Dubai’s traditional industrial locations such as Al Qusais and Al Quoz are faring better than newly emerging locations with many tenants choosing locations closer to their customer base for ease of goods movement.
The report said the recent announcement by Abu Dhabi municipality in relation to the relocation of auto workshops from the city to Musaffah might even lead to some short-term elevation of lease rates as landlords look to capitalise on favourable supply and demand fundamentals.
“However, a further sustained period of such high leasing rates would not be conducive for the overall growth of the industry and could actually result in some migration of tenants and investors towards more competitive destinations within the UAE as well as neighbouring countries,” it said.
“Despite competitive lease rates the attractiveness of the Northern Emirates remains somewhat tarnished as ongoing infrastructure issues continue to be a major disadvantage in the overall development of the market. Ongoing power issues and a lack of other necessary services have resulted in properties being left vacant or offered at well below market levels. It is anticipated that this trend will continue to influence occupancy and lease rates in the short term before sufficient infrastructure improvements can be made,” the report said.
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