Cluttons: Dubai’s industrial sector Q1 2011 market report

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Cluttons, the real estate specialist that has enjoyed a dedicated presence in the Middle East since 1976, issues its Q1 market 2011 report for Dubai’s industrial sector, which has typically been the least affected of the property sectors.

After years of speculative development that forced international logistics companies to lease inferior quality and light industrial buildings, the report stated that Q1 2011 has been marked by the completion and occupation of a number of ‘super sheds’ that would appeal to many institutional investors.

The recent completion of the 650,000 square foot shed for the leading CEVA Logistics in JAFZA’s south zone for example, is the first development delivered in the region by Gazeley, a global provider of logistics space. The facility is designed and built on the exacting requirements of CEVA Logistics who provided a detailed input into the operational aspect of the design. Prior to completion, the building was sold to a third partly investment fund with CEVA Logistics signed up to a 20 year lease.

High quality logistics and distribution facilities with institutionally recognized lease terms in place are achieving upwards of Dhs30 per square foot in the current market. This has created a twotier market, when contrasted with low quality warehousing, where rents are around Dhs21 per square foot.

The facilities achieving higher rental yields offer occupier led design points and a high build quality matching the standards expected by international occupiers in more developed markets such as Europe and North America. With the increased level of quality premises recently coming online in Dubai World Central (DWC) and Jebel Ali Free Zone (JAZFA), it is hoped that the design and build of new logistics facilities will continue to be shown consideration which should help the market become more appealing to both large international occupiers and investors alike.

Pricing Analysis:
• Yields for larger high quality logistics facilities have compressed to below 10% down from 13-14%, where they were during 2007-2008. This is due to the increase in investor appetite seeking high quality, guaranteed income streams from well-capitalised organisations
• Current lease rates in JAFZA and Dubai Investments Park (DIP) for low quality warehouse facilities built on a speculative basis have slightly dropped to below Dhs21 per square foot in quarter one of 2011
• Bucking the trend, high quality logistics and distribution facilities with institutionally recognised lease terms in place are still achieving upwards of Dhs30 per square foot.

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