Build to suit options gain momentum in Dubai industrial market

The industrial rental market in Dubai is shifting towards build-to-suit options as lack of supply in the segment starts to drive demand, a new report finds

Cluttons expects rents to remain flat over the next 12 months in Dubai's industrial rental market.
Cluttons expects rents to remain flat over the next 12 months in Dubai's industrial rental market.

The industrial rental market in Dubai is shifting towards build to suit options as lack of supply in the segment starts to drive demand, a new report finds.

Cluttons Winter 2017/18 Dubai Industrial Market Bulletin indicates an increasing trend towards build to suit facilities, especially for those of excess of 14,000m2.

However, demand levels for industrial space continues to remain lower when compared to the same period last year, despite marginal improvement in demand following a relatively quiet summer.

Murray Strang, head of Cluttons, Dubai, said: “While we expect the build to suit trend to gain momentum over the coming months in order to satisfy requirements from large occupiers, we don’t expect it to be a game changer for the emirate’s industrial market.

“At present, we are aware of requirements from a handful of onshore retailers, an online retailer and an international car manufacturer, as well as a 100,000 sq ft requirement for an existing logistics occupier to expand its operations in Jebel Ali area.”

On an annual basis, secondary space at Dubai Industrial Park is the city’s weakest performer, dropping by AED8 psf to AED32 psf, while Dubai Silicon Oasis remains the best performing market, holding steady at AED65 psf for secondary space and AED77 psf for grade A space.

Faisal Durrani, head of Research at Cluttons, said: While general requirement levels remain low in the industrial sector, the lack of activity provides incumbent occupiers with the opportunity to relocate to better quality stock.

“Across the city, rents have stagnated throughout the year, with some drops recorded, particularly in secondary grade space.

“We have already seen landlords demonstrating greater flexibility around lease terms, with many willing to close deals below headline asking rates and we expect this to continue into 2018.”

Looking ahead, Cluttons expects the low transaction volume environment to persist over the short term, with vacant, or speculatively developed stock becoming increasingly more challenging to let.

The impact of Value Added Tax, which will be implemented in January 2018, does not seem to have phased industrial occupiers so far, especially with the looming Expo 2020 effect still to filter through in the form an upward tick in demand. 

Cluttons expects rents to remain flat over the next 12 months, before there is the potential for a turnaround in growth.

 

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