Industrial lead: Demand for warehousing services is on the rise

Although little noted, the environment for industrial real estate has been improving rapidly over the last five years. While it is less glamorous than its residential and commercial cousins, warehousing and industrial real estate is set to be increasingly important for Saudi Arabia as the economy continues to grow and diversify.

Logistics Growth

Indeed, a GDP growth rate of 6.77% in 2011 alone should suggest that the demand for warehouse services in the country is on the rise. In 2011 exports of goods and services increased by 43.7%, while imports increased by 13.7%. The rising flow of goods is being supported by an improved environment for logistics. According to aggregated information compiled by global property services firm Jones Lang LaSalle, the country is investing heavily in transport infrastructure, with the development of six airports at a cost of SR25bn ($6.7bn), two ports at SR12bn ($3.2bn) and 23 rail projects with an investment size of SR96bn ($25.6bn). The country is, therefore, rapidly becoming an important logistics centre. According to the trade journal Transport Intelligence, Saudi Arabia is one of the leading emerging logistics markets globally. The Kingdom ranked 6 on the journal’s 2011 index, climbing four places and marking it out as the highest ranked country in the Middle East.

This shift is likely to have a substantial impact on the Saudi real estate industry as well, although the greatest impact should be felt by companies offering industrial real estate services. Husam Al Saleh, managing director of the Hala Group, a Saudi Arabian supply chain services company, told Arabian Supply Chain magazine, “The biggest opportunities in Saudi Arabia revolve around warehousing. It is currently well below world standard − if we manage to upgrade this, we will upgrade the standard of living.”

Incentives

The environment for entry into this market seems promising. In a 2011 report on real estate opportunities in Saudi Arabia, Jones Lang LaSalle wrote that there is “strong occupier demand for locations offering multimodal logistics networks”. As well as this significant demand, there is also robust infrastructure in place to support the roll-out of more industrial real estate services. This is seen in the work of the Saudi Industrial Property Authority (MODON). The government-owned body offers a number of incentives for the industrial sector, including the provision of zoned industrial land. The authority offers these plots at discounted rental rates that can go as low as SR1 ($0.27) per sq metre per year depending on the level of service and infrastructure associated with the land.

It is clear that MODON is working hard to bolster the country’s manufacturing and industrial base, contributing to ongoing efforts that will further diversify the local economy. This is clear from the authority’s figures on developed industrial land. According to MODON, there were 75.8m sq metres of developed industrial land in 2010, a figure that is expected to increase to 150.8m sq metres by 2015. The amount of developed industrial land is currently growing at 26% per annum, and by 2015 the country should be adding a further 18m sq metres of industrial land each year.

Coming On-Line

Thus, the prospects for warehousing demand and industrial property management services look strong. New developments, such as the four economic cities, all of which will have industrial areas, and the August 2012 announcement of a new industrial city for women should also stimulate the industrial property market. The latter is a project near Hofuf in the Eastern Province that is slated for completion in 2013. The industrial city will employ 5000 women in a number of industries including food processing, textiles and pharmaceuticals.

While this is a MODON-led development, it is certainly indicative of the demand for industrial projects and industrial real estate throughout the country. From warehousing to industrial parks, Saudi Arabia’s economic growth, developing trade flows and logistics infrastructure should provide a multitude of opportunities for private sector developers and industrial property management specialists over the coming years.