Increased trade flow sees industrial growth

There is increased interest from both occupiers and investors in the industrial sector of the real estate market in Dubai and across the broader GCC. This is being driven by a number of factors, including the continued growth of trade flows and changes in the locational decision-making process of manufacturers that are reshaping trade patterns.

Dubai is symptomatic of these changes that are occurring across the region. Increasing levels of trade flows were one of the major drivers of the 3 per cent growth in real GDP recorded in the emirate in 2011 and these flows are forecast to increase further as the economy is expected to grow between 4 and 5 per cent in 2012.

Three underlying factors are expected to influence manufacturers' locational decisions over the next few years.

Increasing energy costs

Transportation typically comprises about 50 per cent of manufacturer's operating costs and therefore plays a major role in their choice of location. The average price of oil has increased from less than $30 (Dh110) in the early 1990s to an average of $72 over the past five years, with current prices above $120 per barrel.

Simply put, higher oil prices are driving manufacturers and logistic operators to consider new locations and the strategic location of the Middle East is resulting in increased interest in industrial and warehousing accommodation within the region.

The China rebalancing

For several decades now China had been the destination of choice for global manufacturers. More recently, China's phenomenal economic growth has led to higher labour and production costs, partially offsetting the financial advantage of setting up production there.

Additionally, increasing energy costs and increasing pressure for companies to be environmentally and socially responsible has shifted attitudes on both the how and where they do business.

With US and European companies being less inclined to outsource production to China, there is increased opportunity for the UAE and other countries in the Middle East to attract such activities given their strategic location and low energy costs.

Sustainability imperative

The on-going focus on sustainability is not a passing trend; rather it is a deep-rooted populist movement that will influence governments and businesses alike. Whether driven by an authentic concern for the environment, an aspiration to achieve cost efficiencies, or required to meet government regulation, sustainability is here to stay.

The continued price volatility and supply of oil globally will put the industrial and logistics sectors at an even more vulnerable position unless they improve energy efficiency and develop alternative fuel sources. These elements combined are expected to influence decision-makers in how they come up with modern distribution strategies that will minimise environmental impact.

Locations such as the UAE with good access to growing markets and high quality infrastructure are ideally placed to help reduce the length and environmental impact of distribution routes.

A key feature of the industrial market is that most projects are built for specific occupiers and the market does not therefore suffer from the same levels of speculative activity as the office and residential sectors. As such, the industrial sector is increasingly attractive to those investors looking to hold securely leased income-producing assets.

The continued growth of the industrial sector will be driven by a combination of demand from occupiers keen to reduce energy cost, increase efficiency and provide sustainable solutions and improved infrastructure.

The writer is the CEO for Jones Lang LaSalle, Middle East and North Africa.