Demand for Dubai industrial property outperforms housing and office sectors

Demand for industrial property in Dubai is holding up despite the slump in both residential and commercial markets.

A new report by the consultancy Core Savills found that industrial rents “were broadly stable” across most of the estab­lished industrial areas in the city throughout last year, while some of the newer parks such as Dubai South, Dubai Investment Park (DIP) and Dubai Industrial City (DIC) reported rental growth.

Sale prices of industrial land and buildings in newer areas held steady, and increased in older districts such as Al Quoz, Al Qusais and Ras Al Khor because of a lack of supply.

Dubai’s port and airport links mean that it is popular with logistics, shipping and light and medium manufacturing firms. According to Savills, about a third of total demand for space came from the logistics sector, whose market value was expected to reach US$25 billion by the end of last year, according to Dubai Chamber of Commerce and Industry. The other major demand drivers have been for light and medium-scale manufacturing units (21 per cent) and for storage space from the construction (14 per cent) and retail (11 per cent) sectors.

David Godchaux, the chief executive of Dubai’s Core Savills, said that the industrial property market “is often disregarded by many investors”.

He added: “People typically look at the residential or office market. But when you look at the returns in Dubai, where there is a shortage of quality supply, relatively strong demand and infrastructure in place, it [industrial] is certainly a market which investors should not over­look.”

Mr Godchaux said that despite continuing concerns over low oil prices and general economic uncertainty, the industrial market in Dubai was proving resilient as it remained a major regional hub.

“In Dubai, there is a limited supply of quality logistic space, and decent long-term returns can be achieved by those ready to invest at an early stage of development, or in areas of high demand,” Mr Godchaux said.

Dubai’s residential sector experienced price declines of 11 per cent last year and further falls are expected in 2016 as more supply is delivered into a subdued market, said the property consultancy Asteco last week in its fourth-quarter 2015 report. About 14,300 new homes were delivered last year, but this is expected to increase to 29,700 this year.

A similar story is taking place in the commercial office market, where demand fell in the second half of the year and prices followed suit. Approximately 500,000 square metres of office space was delivered in 2015, but this is set to more than double to 1.1 million sq metres this year.

“The majority of new office supply entering the market this year will be strata-owned buildings in popular office areas like Business Bay and Jumeirah Lakes Towers,” said Asteco’s managing director John Stevens.

The company added that this could lead to a reduction in sale prices of strata-owned units and rents in these areas, as owners of the newer space try to encourage tenants to fill buildings.

“Sales demand is expected to come primarily from SME-level end users,” added Mr Stevens.

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