A lack of suitable warehousing across Dubai and Abu Dhabi is providing opportunities for institutional investors to get into industrial real estate. Non-industrial developers are also poised to take advantage of the gap.
Strong demand for facilities in e-commerce and logistics, and the expansion of oil and gas companies in Abu Dhabi in particular, has led to an increase in rental rates.
Abu Dhabi’s industrial market witnessed an average rental rate increase of 5% across the city, with higher demand in Mussafah and Icad.
Dubai’s warehousing and industrial rents increased 13% year on year compared with the third quarter last year, according to research from Cushman & Wakefield Core. In Dubai Investments Park and Dubai Industrial City, rents have soared 25% and 21% respectively.
Demand this year is outstripping supply, the report said. Prathyusha Gurrapu, head of research and consultancy at Cushman & Wakefield Core, said the increased rent has encouraged new types of investors and developers to enter the market.
“The potential for strong returns and the opportunity to meet the increasing demand for high-quality warehousing and industrial spaces are key factors attracting institutional investors and non-industrial developers to the industrial sector,” he said.
Developers and investors are “recognising the value in diversifying their portfolios to include warehousing and industrial facilities”, Gurrapu said.
Ashley Sonnenberger, industrial and logistics manager at CRC Real Estate, an affiliate of Dubai real estate conglomerate Betterhomes, said they have witnessed “a noticeable uptick in interest, particularly in areas like Dubai Investments Park, where land acquisitions have surged” in the third quarter of this year.
“This interest is driven by the limited availability of premium warehouses in prime industrial zones, prompting developers and investors to build high-quality, modern warehouse facilities,” Sonnenberger said.
“The demand for efficient storage solutions is growing rapidly and investors are recognising the strong returns and stability the industrial sector offers.”
Aldar, the property development company owned by the Abu Dhabi government, in January announced an AED1 billion ($272 million) plan to expand its logistics real estate arm in Abu Dhabi and Dubai with 233,000 square metres of Grade A facilities.
And in July Aldar said it would break ground on a new logistics park within DP World’s 21 square kilometres National Industries Park in Dubai in the fourth quarter of 2024.
Canadian company Brookfield Asset Management in May acquired a controlling stake in a portfolio of warehouses owned by the UAE’s Gulf Islamic Investments. This included 139,000 square metres of high-quality warehouses across the UAE.
Future growth
A report by Mordor Intelligence valued the sector at nearly $9 billion in 2023 and predicted it will nearly double in size by the end of the decade.
“There are a few more UAE-based developers who are looking at acquiring and building Grade A warehousing spaces that we are in discussions with,” Gurrapu said, declining to name those involved.
The UAE’s industrial sector has enjoyed rising demand for Grade A investment assets from local and international funds who are entering the market, Sonnenberger said. “This offers promising returns on investment starting at 8%up to 14%
“During Q3 2024 at CRC, we have witnessed warehouse buyer leads increasing by 27% year on year and selling at an average of AED7 million ($1.9 million).”
He said the willingness to commit significant funds “reflects a shift towards higher quality assets and a diversification strategy among investors”.
Etihad Rail is likely to drive further development at established industrial districts in Dubai and Abu Dhabi. “We anticipate new areas of industrial development along its route,” Sonnenberger said.
“Notable locations include Dubai Investment Park, which benefits from the connectivity, and Dubai South, particularly due to the new Al Maktoum Airport.”
He said they are also seeing potential in the emerging area of Al Layan and the National Industries Park, “where Aldar recently acquired land to develop 139,000 square metres of warehouse space – a prime example of a non-industrial developer diversifying into the demand of warehouses“.