Hive of industry: Supply of warehouse space is set to expand with demand in the coming years

With the development of an industrial base forming an important component in the emirate’s overall economic diversification strategy, the demand for high-quality industrial real estate including warehouse space is expected to rise. While the supply of this type of product has historically been limited in Abu Dhabi, the market has begun to recognise the profit opportunity and supply is expanding accordingly.

ECONOMIC ZONES: A key plank of the government’s infrastructure programme has been the development of dedicated industrial zones that are closely integrated with the transport network. These include the main industrial zone at Mussafah, which covers 14 sq km, as well as the newer Industrial City of Abu Dhabi (ICAD) development, which is managed by the Higher Corporation for Specialised Economic Zones (generally known as ZonesCorp). ICAD is being developed in several phases, with three already completed.

The government has more recently signalled its intent to support further industrial development. In January 2012 the Executive Council, the emirate’s primary decision-making body, announced that it had approved the budget for infrastructure works for Khalifa Port and the development of the industrial zone called Kizad. The latter, a 417-sq-km zone that will target a variety of industries including aluminium, steel, petrochemicals and pharmaceuticals, is located next to the Khalifa Port, with close access to the E11 highway that runs between Abu Dhabi and Dubai. In December 2011 Khaled Salmeen, then the executive vice-president of Abu Dhabi Port Company, announced that 30 industrial projects valued at $5bn would be built at Kizad within three years.

LOGISTICS: Kizad is also developing a warehouse and logistics park, which will include both pre-built warehousing space as well as land lots for investors to construct their own facilities. In May 2012 officials from the industrial zone announced that they would begin pre-leasing warehouse space in both its free zone and non-free zone areas, with 105 units spread over 220,000 sq metres of land scheduled for completion in 2013.

The pre-built warehouse space is available in modular units that begin at 1000 sq metres, with sizes going up to 21,500 sq metres in the free zone area and 11,000 sq metres in the non-free zone area. The availability of large units is likely to be an advantage in a market where most pre-built stock is quite small. Construction of this first wave of pre-built warehouses – there are three phases planned for the warehouse and logistics park, with some 400,000 sq metres of land to be covered in total – began in mid-2012, with completion expected by the end of the second quarter 2013.

In addition to pre-built warehouse space, Kizad is also leasing land for occupiers and logistics firms to develop custom structures, with these plots ranging in size from 15,000 sq metres to 500,000 sq metres.

LIMITED SUPPLY: The new warehousing developments at Kizad could potentially have a major impact on a market that is at present still quite small. To put the figures from Kizad in perspective, according to a report from DTZ research, the total warehouse stock in Abu Dhabi stood at 9.46m sq metres as of 2010.

The global property consultancy also noted that its calculations showed that total demand stood at 8.92m sq metres, leaving a small buffer of around 540,000 sq metres, or 5% of the total. Moreover, DTZ said that only 6% of existing stock counted as high-quality product, adding that much of this space was occupied, leaving an undersupply in this sub-segment. According to El Fatih Said, the CEO of Abu Dhabi Business Hub (ADBH), there is still a gap in the market for grade-A warehouses and industrial space. “This is a segment of the real estate industry that was overlooked during the construction boom in recent years, but still deserves significant attention,” he told OBG.

However, like in those more popular areas of the market, rents continued to fall across the industrial segment in the wake of the global economic crisis, from around Dh1900 ($515) per sq metre in 2008 to approximately Dh750 ($205) per sq metre in early 2011, according to international property consultancy CBRE.

Rents have since started to stabilise, with Said telling OBG that his company’s warehouse pricing has been fairly steady since 2010. ADBH currently owns and manages a development of office complexes and industrial warehouses at ICAD, with its facilities covering an area of 298,000 sq metres on land leased from ZonesCorp. Unlike in the case of office and residential real estate, the industrial real estate market is not over-supplied. He noted his company is presently developing more built-to-suit office and warehouse space, as the business park nears 100% occupancy and continues to receive four or five inquiries a month.

ADDED SUPPLY: Perhaps not surprisingly, given this high demand and relatively low supply, new industrial real estate developments continue to come onto the market. A recent example was the Al Markaz development from Waha Land, a subsidiary of publicly listed investment firm Waha Capital. In April 2012 the company announced that it had commenced delivery of the initial units of the first phase of the development, a light industrial real estate project 25 km south of Abu Dhabi City that is being built on a 0.6-sq-km plot of land that was originally provided by the government of Abu Dhabi.

The first phase of the Al Markaz development – four phases have been planned – includes 220,000 sq metres of warehouses, 285,000 sq metres of light industrial units and 90,000 sq metres of small light industrial units. Serviced plots are available for tenants to provide their own warehouse or factory, or Waha Land can construct a purpose-built facility to customer specifications. Al Markaz is providing the internal infrastructure necessary to link these plots together, as well as the external infrastructure to tie the development into the local transportation grid. Indeed, one of the selling points for Al Markaz is its nearby access to major transport links such as Mussafah Port, Khalifa Port, the E-11 highway and the Tarif highway. It is also close to the site for a terminal for the 1200-km Etihad rail network, which will link the UAE with Saudi Arabia and Oman.

Demand for units at Al Markaz has been strong, with the company noting shortly after its market launch in April that it was already in discussions with international, local and regional companies for leases of 15-25 years. Then in June, the COO of Waha Land told the local press that 5-6 local clients and two international tenants had been signed, a signal of the strong demand for prime industrial and warehousing space.

“While some segments of the real estate sector have been oversupplied in recent years, the industrial real estate market still has healthy room for growth,” Salem Al Noaimi, CEO of Waha Capital told OBG. “Development of new infrastructure and strong growth in regional trade are not only positive drivers for the logistics industry, they are also changing the industry’s dynamics in favour of modern, well-designed facilities in specific locations.” Moreover, with major projects like Kizad at the forefront of the government’s agenda, this trend seems likely to continue, creating an opportunity for investors.