Industrial space is predicted be the first property sector to recover in the UAE, analysts say.
Industrial space leads the way to property recovery
It might not be glamorous but the hottest property sector in the UAE is industrial space.
Office complexes, residential towers and shopping malls with ski slopes get the bulk of the attention, but warehouses and logistics centres are attracting investors and tenants, analysts say. Cushman & Wakefield, a global property company, recently ranked Abu Dhabi the 10th most expensive industrial market in the world, a notch below Paris.
Industrial space was "less subjected to speculative development", said David Quinn, the head of UAE operations for Cushman & Wakefield. "Because it wasn't sexy it wasn't developed in the boom years in the same way as offices and residential."
Light industrial and logistics buildings will be the best-performing sector this year, Jones Lang LaSalle, an international property consultancy, predicted in a report released this week. Investors like the steady yields and relatively low risk offered by industrial space, according to Andrew Charlesworth, the head of capital markets in the UAE for Jones Lang LaSalle.
"People are looking for alternative classes," he said.
But there are few industrial properties available for sale, Mr Charlesworth said. Either buildings are controlled by government agencies or they were built for specific companies.
"Investors are trying to find a way in, but there aren't deals to be done," Mr Charlesworth said.
Rents for industrial space fell during the economic crisis, mirroring the trends in other sectors.
Dubai rates have fallen from about Dh500 (US$136.12) a square metre to Dh250 a sq metre, according to data from CB Richard Ellis (CBRE), another international property company. In Abu Dhabi, rental rates that were more than Dh1,900 a sq metre in 2008 are now closer to Dh750 a sq metre.
But rents have started to stabilise in many areas.
"There is a lot more demand [in Abu Dhabi] than a year ago," said El Fatih Said, the chief executive of the Abu Dhabi Business Hub, which developed and leases 67,000 sq metres of warehouse facilities in Musaffah that were completed in 2009.
At first leasing was "very, very slow", said Mr Said. But the facility is now 83 per cent leased, although the prices have dropped from Dh1,000 a sq metre to Dh660.
"It's a very complicated market," he said.
The majority of industrial space in Abu Dhabi is located in the older, more established area of Musaffah and in the new Industrial City of Abu Dhabi, according to Cushman & Wakefield. Non-free zone industrial rents in Dubai remain 25 to 30 per cent lower than those in Abu Dhabi, the company added.
New industrial space under construction throughout the UAE should put further pressure on prices, analysts say. The Khalifa Port and Industrial Zone outside Abu Dhabi and the Dubai Industrial City, which covers 5,202 hectares, as well as the Jebel Ali Free Zone, offers tenants a wide variety of options.
But the industrial sector will benefit from a recovery in the UAE economy, which should spur demand, analysts say.
Trade volumes are on the rise, which should directly boost demand for industrial space. Non-oil related trade rose 11.5 per cent in the first 10 months of last year, compared with the same period in 2009, according to Federal Customs Authority data. The UAE's GDP is expected to grow 4.7 per cent this year, the economics analyst Global Insights predicts.
Industrial projects will also benefit from an estimated $45 billion the UAE is spending on infrastructure projects, Jones Lang LaSalle says, including the Union Railway construction and metro lines in Dubai and Abu Dhabi.
"The [Federal] Government is looking to move back to basics," said Matthew Green, the UAE head of research for CBRE. "Certainly there is going to be a big focus on industrials."