There exists a sizeable gap in rents between Grade A and Grade B stock.
Weak global trade volumes and oil price volatility have resulted in a fall in rents in Dubai's industrial real estate sector during summer.
Despite being the regional logistics hub, Dubai is seeing weak demand for its warehouses, according to Cushman & Wakefield Core. Al Quoz saw rents drop by eight per cent year on year (yoy) while Ras Al Khor witnessed a five per cent dip yoy.
CEO David Godchaux said: "Established areas such as Al Quoz and Ras Al Khor continue to witness high occupancies - although older stock and limited room for expansion is pushing rents towards a downward adjustment."
There exists a sizeable gap in rents between Grade A and Grade B stock, which is attributed to build quality, scope for infrastructure expansion and ease of access.
Jebel Ali Freezone Authority witnessed a nine per cent yoy drop in rents. However, due to its established infrastructure, it continues to attract international occupiers.
"The spill-over of smaller and on-shore requirements is largely catered to by the Jebel Ali industrial area as it offers supply in all formats and sizes such as manufacturing, warehousing and land plots, but with predominantly Grade B build quality," explained Godchaux.
While existing occupiers are trying to make the most of current footprint, new entrants are cautious when undertaking their first phase of expansion in the region. However, Grade A stock continues to attract tenants.
While some occupiers demonstrated a flight to more cost-effective areas such as Dubai Investments Park, Dubai Industrial Park (Dubai Industrial City) and Dubai South which offer better build quality and optimised volumes, in a backdrop of contracting margins, many entities are generally preferring to remain where they are due to a desire to minimise capital expenditure.
New manufacturing activity in Dubai is distributed between the industrial zone within Dubai Investments Park (DIP) and Dubai Industrial City (DIC). DIP caters to light, medium and high-tech manufacturing and warehousing requirements and has leased almost 95 per cent of its land. Rents witnessed a yoy drop of four per cent in Q2.
DIC has dedicated industrial zones and offers land leases for self-build purposes. It also provides industries the option to lease out ready-built warehouses for storage/logistics or light manufacturing. DIC experienced no change in rents.
Godchaux added: "The future drivers for Dubai's industrial and logistics sector will be the servicing of local and regional economies. The government is bolstering this through the recent announcements of Dubai Wholesale City and Dubai Industrial Strategy, aimed at increasing total output and creating value for the manufacturing and logistics sectors.
"These new initiatives should propel trade volumes and, in turn, strengthen the industrial real estate in the mid- to long-term but may fall short to drive immediate demand in the near term. The current sluggish demand marks a revision of our near-term outlook as we expect rents to remain flat or contract marginally for the following two quarters."