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UAE Industrial momentum

Over the past 12 months, with a number of key developments supported by government investment, the UAE has experienced an encouraging increase in demand for industrial space. The uptick in the sector has been helped by the improved economic climate, which is helping to maintain confidence in the market and encourage industrial development across the country.

In Dubai, preparation for Expo 2020 is having a positive impact, and it’s no surprise that industrial activity around the event site is increasing, with occupier demand rising throughout this year. Requirement levels have been strong for areas around Al Maktoum International Airport and Jebel Ali Free Zone as companies begin initial preparations for the expected spike in activity leading up to the World Expo in 2020.

As a result of the rising demand, rents have increased in Dubai Investments Park (DIP) for industrial units, with a 10.5 per cent increase recorded in warehouse leasing compared to the same period last year.

Activity at DIP remains dominated by distribution, light manufacturing, food and beverage (F&B) and cold storage companies, fuelled by the buoyancy in the hospitality sector. The latter added an estimated 500,000 jobs to the UAE economy last year, according to the World Travel and Tourism Council. The continuing economic vibrancy is expected to maintain demand for space across the emirate’s changing industrial landscape.

Limited supply
Growth has been limited to some extent by a lack of supply, which is now beginning to impact occupiers’ expansion strategies.

An increase is expected in the amount of purpose-built facilities, particularly from the rapidly expanding F&B sector. In addition to the expansion of freezones, an increased amount of speculative warehouse development is forecasted, as submarkets in the vicinity of Dubai World Central approach saturation.

Techno Park, which sits just opposite Dubai Logistics City, is likely to record an uptick in occupier interest as the surrounding freezones reach full capacity.

It is likely to emerge as a particular favourite due to its strategic positioning between Shaikh Zayed Road and Mohammad Bin Zayed Road and also due to its proximity to Al Maktoum International Airport.

Furthermore, the recent announcement by Dubai Customs and Economic Zones World to establish Dubai’s first fully integrated e-commerce hub, which will cater to the rapidly growing online retail industry, will further enhance the appeal of Techno Park, particularly amongst members of the SME community.

Future hubs
The main focus of industrial activity in Abu Dhabi remains at Khalifa Industrial Zone Abu Dhabi (Kizad), as occupiers focus their expansion activities on the area, with land plots in particularly high demand. Kizad’s attractive positioning between Abu Dhabi and Dubai is capturing the attention of prospective occupiers. The signing of an agreement between Etihad Rail and Kizad is expected to further enhance its attractiveness as Abu Dhabi moves to establish its first integrated rail, port and logistics hub.

The second phase of the 1,200-kilometre Etihad Rail line will see a 628 kilometre freight link established between Kizad and Dubai, Mussafah, Al Ain and the existing Ruwais-Shah line by 2017. Similarly, with the establishment of Etihad Rail’s main operational base in ICAD IV, an increase in occupier demand is expected in this area as manufacturers and distributors look to position themselves near the hub of the UAE’s first freight train line.

Away from Kizad, in a clear effort to help strengthen the city’s attractiveness as an industrial base, the Abu Dhabi Ports Company has announced plans to invest Dh20 million in essential maintenance and infrastructure upgrades at Zayed Port and the adjoining Freeport. The upgrading of facilities is expected to boost the appeal of industrial submarkets such as Mussafah that help to service the city.

The importance of creating multinodal industrial hubs across the emirate continues to gather pace with the ongoing delivery of light industrial units and warehouses at Skycity’s Logistics Park, adjacent to Abu Dhabi International Airport (AUH). With expansion work at the airport under way and annual passenger numbers quickly nearing the 20 million mark, aided by the brisk expansion of Etihad Airways, the importance of AUH as an air cargo hub is rising rapidly, as evidenced by both the swift letting of warehouses at Logistics Park and the number of enquiries being reported.

Expanding industries
The textile industry is now the second-largest trading sector in the UAE after hydrocarbons, and we expect to see more industries flourish in the coming years with the government’s ambitious plans to diversify the economy away from hydrocarbons.

This expanding industrial base in the UAE, driven by the economic growth across a wide range of sectors, has led to increased demand from both banks and occupiers to include plant and machinery equipment in valuations, to identify the true value of industrial property and its contents.

True assessment of value
Cluttons’ valuations are based on assessments by fully qualified individuals well-versed in various kinds of industrial facilities throughout the region. By considering the market situation, standard of maintenance, plant and machinery in existing use by a company, we are able to give a clear-cut monetary estimate for what can often seem a complicated mechanical configuration.

Understanding this complex nature of plant and machinery valuation and its relationship to other industries allows industrial-based occupiers and financial institutions to make more accurate financial decisions. Ensuring the true market value of an asset helps to avoid inappropriate insurance policies.

Under financial reporting for the Indian GAAP, IFRS and US GAAP, assets have to be periodically valued to market value to reflect the true assets on the balance sheet, and true market valuations are also required for banks to lend against assets, impairment studies, insurance, mergers and acquisitions, initial public offerings, and cost investigations and disinvestment.

With the growing industrial sector in the UAE and wider Middle East region, and valuation required on a regular basis, specialist plant and machinery valuation is becoming increasingly vital. With this increase in industrial activity over the past year, we expect to see the aviation, hospitality and retail industries flourish, facilitating demand for improved infrastructure in the UAE.

Source: Andrew Powell, Senior Industrial and Logistics Surveyor at real estate services firm Cluttons