The UAE industrial market has continued to show a relatively steady performance despite the emergence of economic headwinds, amidst ongoing global uncertainty, said a report by global real estate consultancy firm CBRE.

The softening of crude oil prices over the past 18 months has had mixed effects on the UAE industrial sector, and on the markets in Dubai and Abu Dhabi, stated the CBRE in its H1 2016 UAE Industrial & Logistics MarketView report.

On Dubai, the report said the emirate continues to solidify its position as an important staging post for the fast growing economies in Africa and West Asia, offering occupiers superior infrastructure and supply chain facilities.

Whilst oil makes little direct contribution to Dubai’s economy, the falling oil prices have still diminished consumer and investor confidence, with the overall average rental rate for warehousing within CBRE’s basket of industrial locations, remaining flat in the past 12 months.  

This is largely due to the differing economic drivers of the two emirates, with Abu Dhabi driven primarily by the oil and gas sector, whilst Dubai’s is more diversified and reliant on the import-export market, it stated.

Mat Green, the head of research and consulting UAE, CBRE Middle East, said: "While enquiries from downstream and upstream petroleum companies and its allied sectors have dropped away in recent quarters, this drop has been balanced by enquiries from international occupiers, which have remained relatively steady during the same period."

The UAE government has expressed interest in non-oil and gas revenues and aims to raise the industrial sector’s contribution to around 20 per cent by 2020, as it strives to further diversify the national economy to limit the negative impact of future fluctuations in the hydrocarbon sector.

According to the CBRE report, this is driven by a lack of high quality warehousing supply, constraining occupier movement, with low vacancy levels in this segment reflecting sustained demand for well-located and high quality facilities, such as Jebel Ali Port and Dubai International Airport (DXB).

“Dubai’s position as a global integrated logistics hub has already been enhanced by the bonded transport and logistics corridor from Jebel Ali Free Zone Authority (Jafza) to DWC, which gives international occupiers the facility to bulk break goods arriving in Jebel Ali Port and then send them via air freight from DWC airport potentially within three to six hours,” commented Green.

With this hub status, Jafza has witnessed year-on-year increase of around three per cent.

Warehouses or light industrial units (LIUs) from Jafza (in the primary market) currently have less than five per cent vacancy rates, underlining the strength of the market. Jafza also has a very active secondary market, with an increase in properties available for sub-lease and sale.

This has in part been led by declining capital values, which have fallen by close to 15 per cent year on year for Class One industrial assets.

Whilst overall demand levels have remained steady during the first half of 2016, there has been a noticeable increase in demand for warehousing facilities from the food and beverage sector, as well as global fashion/retailers, while global automobile majors continue to show demand for creating regional hubs within free zones for training, research centers and regional parts storage hubs, said the CBRE report.

On Abu Dhabi, the global property expert said with 49 per cent of GDP (gross domestic product) contributed by the hydrocarbon industry, the emirate’s industrial market is heavily linked to the oil and gas sector.

As a result of prevailing lower oil prices and the reduced investment in oil exploration, demand from downstream and upstream petrochemical companies has reduced significantly over the past 18 months.

Cost-reduction measures are also noticeably in force with curbs on non-essential spending. Occupiers, particularly in the oil and gas sector, have been evaluating the possibility of sub-leasing and selling excess capacity wherever possible to help streamline operations.

Reflective of the economic backdrop, the total number of industrial enquiries has reduced year-on-year.  Oil and gas companies, construction, and light industrial sectors each had 20 per cent of the enquiries, with the balance 40 per cent from pharmaceutical companies as a result of government regulations and more stringent storage standards from the manufacturers.

"Good quality industrial accommodation remains in short supply across the entire industrial market in Dubai, whereas Abu Dhabi has successfully leased its first business hub and Kizad, with the second phase of the respective scheme expected to be delivered in the second half of 2016 - although Phase Two (64) of Kizad’s logistics units are currently available for pre-leasing,” remarked Green.

On the future outlook, CBRE said despite the emergence of economic headwinds, the industrial and logistics sector in Dubai is expected to remain relatively resilient in the face of weakening supply from oil and gas occupiers.

However, CBRE expects to see a two-tiered market emerge, with prime and high quality industrial spaces outperforming the wider market, maintaining rentals and encouraging further tenant migration, whilst inferior products and aging and secondary locations are likely to face a period of declining rentals and rising vacancy rates.

With a greater reliance on the oil and gas sector, market rents in Abu Dhabi are expected to decline further, with an increase in vacancy rates also likely amidst the delivery of new supply across major industrial locations.-TradeArabia News Service