DTZ, the international real estate advisory firm, today released a report focusing on the industrial and warehouse market in Abu Dhabi.
Joseph Garwood, Associate Director at DTZ, said:
“In the wake of the economic crisis, the UAE is increasingly focusing on the building blocks that helped it grow, trade. Our report provides a summary of the industrial and warehouse market in Abu Dhabi with particular focus on the more established and up and coming warehouse locations within the Emirate.”
The industrial and warehouse market in context
According to the report, the economic development and diversification strategies of the UAE, and other GCC countries, has generated the need for more advanced logistics capabilities as these countries are on course to significantly increase their production and manufacturing bases. In light of this, the growth of the logistics sector will have a significant impact on the demand for warehousing space. Re-exporters as well as third party logistics supplies (3PLs) are predominantly seeking warehouse space within free zones.
Additionally, the manufacturing sector in the UAE is still developing, thus has a high reliance on imported goods. Traders currently account for the majority of demand for warehousing space within the country, particularly outside of the free zones.
Abu Dhabi industrial and warehouse stock
Historically, Abu Dhabi has suffered from a severe shortage of good quality warehouse and distribution accommodation. Despite numerous announcements of large-scale new developments, there has been a limited delivery of completed projects. Given the economic climate, this situation is likely to continue in the medium term. DTZ estimates there is approximately 9,460,383 sq m of warehouse stock (all grades of quality) in Abu Dhabi. The majority of warehouse stock in Abu Dhabi is of low grade quality, built over the last 20 years. This is characterised by a high percentage of single storey garage type buildings with corrugated iron roofs and rudimentary loading and access provisions.
DTZ considers there is currently no Grade A warehouse space in Abu Dhabi, but there is a limited amount of ‘good quality’ warehousing that has emerged in the last 2-3 years. DTZ estimates there to be approximately 600,000 sq m of such space in Abu Dhabi at present which is approximately 6% of the total current stock. However, much of this is occupied space which means there is a significant undersupply of quality stock in the market.
Vacancy levels
Vacancy rates have traditionally been very low in Abu Dhabi due to the limited amount of speculative stock brought to the market, with each industrial zone leaving the construction of warehouses to owner occupiers. Accordingly, there is a very low vacancy rate within Mina Zayed, with the majority of tenant’s having been in occupation for 15+ years. Warehouses available to rent in Mussafah are generally stand-alone, second hand warehouses, although there is not a wide selection and quality is highly variable. ABDH (ICAD I) has warehouse availability of circa 40,000 sq m + available to lease.
Development pipeline
There is circa 365,000 sq m of (confirmed) development pipeline over the next 12 to 48 months. Planned pipeline is unlikely to oversupply the market at this stage in the development cycle.
As the market matures, the trend is moving away from owner occupiers dominating the market to more international quality warehousing supplied by developers. The challenge for many landowners and developers is getting utilities connected, which will hinder future supply and make it difficult to lease the schemes.
Demand
A demand study undertaken by DTZ, based upon the current number of industrial workers, estimates the total average floor space demand to be 8,917,822 sq m. A significant amount of Abu Dhabi’s demand for stock is generated by 3PL’s seeking to service contracts with companies in the following sectors; heavy industry; oil and gas; retail; construction; automotive services and aerospace.
Rents
Prior to the economic downturn in Q3 2008, the Abu Dhabi industrial market had been characterised by strong demand levels, low vacancy rates and increasing rents. The combined arrival of more internationally recognised firms and a lack of appropriate supply pushed up rental levels.
However, due to the economic climate, the last 18 months has seen an unwillingness of companies to commit to new leases. In response, rents have reduced significantly in Abu Dhabi but continue to command higher rents than in Dubai.
DTZ understand that many of the warehouses in Mina Zayed were constructed under a Built Operate and
Transfer (BOT) agreement and have recently been leased back to the existing occupiers on below market rates of circa AED 80 to AED 90 psm.
The highest rents that have been achieved in the market are approximately AED 1,000 psm per annum within Phase 1 at Abu Dhabi Airport Logistics Park on requirement sizes ranging from 300 sq m to 3,000 sq m.
The bull run, that the global markets enjoyed up until Q3 2008, saw the Abu Dhabi warehouse rents ranging between AED 800 psm to in excess of AED 1,000 psm for the best stock in Mussafah and ICAD. Asking rents now range between AED 450 and AED 800 psm depending on the location, size and quality of stock.
This demonstrates a reduction of 20% to 40% in rents from the peak, when rents were inflated due to the lack of stock available.
Rents have now tapered off to a more sustainable level and appear to be stabilising. In the medium term, DTZ expect rents to experience upward pressure reflecting an increase in demand and a lack of quality stock.
Garwood summarised the outlook for the industrial and warehouse market,
“DTZ consider Abu Dhabi to have significant potential in the medium term due to its underlying wealth and political standing within the UAE. The oil and gas industry as well as the significant infrastructure investments Abu Dhabi is planning to deliver as part of the Abu Dhabi 2030 Plan, such as the new port, expansion of the airport and the new freight rail and highways, will drive demand. Furthermore, the general quality of warehousing is likely to improve, mirroring a similar trend that Dubai has experienced over the last 5-10 years.”
