Dubai warehouse rents grow on increasing trade with Africa and Iran

Warehouse rents in Jafza, the most popular location for new inquiries, similar to the one above rose 2 per cent during the period to Dh484 per square metre. Stephen Lock / The National

Warehouse rents continue to rise in Dubai, driven by a lack of quality space and increasing trade with Africa and Iran.

Industrial rents, viewed as an indicator of a city’s economic health, grew by an average of 4 per cent during the six months to the end of September, the property broker Knight Frank said yesterday.

The broker said that a general shortage of good quality industrial space was the main reason for the increase as demand continued to outstrip quality ­supply.

Rents in Jafza, the most popular location for new inquiries, rose 2 per cent during the period to Dh484 per square metre, while in Dubai Investments Park they increased 5 per cent to stand at Dh474 per sq metre.

The news comes despite a reported slowdown in the emirate’s economy, driven by a sustained fall in oil prices at the start of the year and the relative strength of the dirham, which is pegged to the US dollar.

The UAE’s purchasing managers’ index, a measure of Dubai’s non-oil private business, slowed in September to its lowest level in three and a half years amid cooling economic growth in the aftermath of the biggest drop in oil prices since the financial crash.

However, the broker reported an overall fall in the number of inquiries for new space, with occupiers postponing new purchases and requirements for larger facilities that require substantial investment. “We think the overall fall in the number of inquiries is a knock- on from what has been happening with the oil price,” said the Knight Frank partner William Neill.

He added that companies in the oil and gas industry had been reducing capacity and have been considering subleasing excess space.

The report added that Dubai was already benefiting from an influx of industrial tenants hoping to take advantage of the city’s location and good infrastructure connections to ship goods to both Africa and Iran – where an expectation of the removal of international sanctions against Tehran is expected to lead to a growth in trade.

According to the Organisation for Economic Cooperation and Development the African continent’s economies are expected to grow 4.5 per cent this year and 5 per cent in 2016, already prompting a rapid expansion of airlines such as Emirates, flydubai and Etihad over the past year to new African destinations.

“Moving and storing goods in inefficient warehouses, across poor roads and closed borders are Africa’s problem areas.

“It is more cost-effective for fast-moving consumer goods businesses to operate from a city such as Dubai than in Africa itself in the near term,” Mr Neill said.

“Similarly, Iran needs billions of dollars of investments to develop key infrastructure in an economy that has shrunk substantially due to the international sanctions,” he added.

“As it does not have the access to superior infrastructure that the UAE has developed, Chinese and European goods are expected to go via Dubai.”

Last week rival broker JLL predicted that retail rents in Dubai would drop in the final quarter of the year and into next year as the strong dollar prompts tourists to spend less in the city’s malls.

Follow The National's Business section on Twitter