research

2013Abu Dhabi logic

2013Abu dhabi logic

2

Kizad Focus• Spinneys – the supermarket retailer –

has recently signed a 50-year Musataha agreement for a 284,688 sq ft land plot in the non-free zone logistics cluster of Kizad. The facility will include a temperature-controlled food distribution centre, as well as storage for non-food items.

• Moreover, Al Dhahira is reported to be establishing a factory in Kizad. The AED 734 million high-tech facility will produce petrochemical products.

• In November, Abu Dhabi’s Environment Agency (EAD) and Kizad signed a Memorandum of Understanding (MoU) to simplify the process for attaining an environmental permit. A One Stop Shop (‘OSS’) will deliver all services required by investors setting up industrial, commercial and light industry projects in Kizad.

• Kizad is expected to play a key role in the future development of Abu Dhabi’s economy. Indeed, Economic Vision 2030 predicts that the industrial zone will go on to account for 15% of the emirate’s non-oil GDP.

Rents Trending

Class 1 Abu Dhabi 550 Industrial City (ICAD)

Class 1 Abu Dhabi 750 airport

Average size 500 - requirement 10,000 sq m

Average rent free Inducement 3 months

Macroeconomic overviewFigure 1Abu Dhabi real GDP growth (% y/y) and relative contribution by sector (%), 2012

Highlights• Indicators of economic activity suggest that, so far this year, Abu Dhabi’s non-oil sector has experienced healthy growth. That in turn has

translated into strong demand for industrial and logistics facilities in the emirate.

• After hitting their respective lows, industrial rents in most of the districts that we track have partially reversed earlier falls. In the case of Kizad however, despite an increase in demand in Q3 2013, quoting rents have been left unchanged in order to stimulate further occupational interest.

• Rents in districts such as Mussafah, ICAD 1 and Abu Dhabi Airport Company (ADAC) Free Zone are still around 15-25% below their 2010/2011 highs.

• In the first nine months of 2013, enquiries were strongest from the plant, engineering and construction (22%) and food and beverage (22%) sectors. Moreover, enquiries from logistics and freight (18%) were higher than those from the pharmaceutical and medical (8%) and technology (7%) sectors put together.

• The latest available data shows that real GDP growth in Abu Dhabi decelerated from 9.3%

in 2011 to 5.6% in 2012. Oil activity expanded by just 3.8% last year, a sharp slowdown

compared to 2011’s 11.7% increase.

• By comparison, non-oil growth quickened from 6.7% in 2011 to 7.7% last year. A sector-by-

sector breakdown shows that the manufacturing and real estate sectors were among the best

performing, with growth of 9.7% y/y and 16.7% y/y, respectively.

• Between January and September 2013, passenger traffic at Abu Dhabi International Airport

totalled 12.3 million – up 12.1% y/y. Over the same period, aircraft movement increased by

12% y/y to 99,414 and cargo traffic rose by 23.8% y/y to 511,679 tonnes.

• Despite the maritime trade suffering as a result of a slowdown in the global economy,

container handling at Abu Dhabi ports rose by 2.5% to 787,000 TEUs last year. Abu Dhabi

Ports Company has projected that, in 2013, the number of containers handled by Khalifa Port

will surpass one million TEUs.

• Going forward, rising bank lending, increased construction activity and the recovery in real

estate prices should drive growth in Abu Dhabi’s non-oil sector.

Figure 2

Key market indicators, H2 2013

Financial and insurance activitiesConstructionOther ActivityTransportation and storageManufacturing

Real estate activitiesTrade & RetailMining and quarryingGDP Growth

10

8

6 5.2 5.46.4

4.9

6.5

9.3

5.6

4

2

0

-2

-4

-62006 2007 2008 2009 2010 2011 2012

Source : SCAD

Source : Knight Frank

KnightFrank.ae

3

Market comment• After seeing a peak-to-trough fall of around 30%, industrial rental values have partially

rebounded in most Abu Dhabi districts over the past year.

• Indeed, in annual terms, rental values have risen by around 10% in ICAD 1 and ALMARKAZ, and by close to 5% in Mussafah.

• However, in some Abu Dhabi districts, industrial rents are still well below their recent peaks. For example, in ICAD1, Mussafah and Abu Dhabi Airport Company (ADAC) Free Zone, rental values are currently around 15-25% lower.

• Industrial rents in Mussafah fall within a broad band of AED 350-500 sq m per annum. This reflects the difference in the quality of industrial units available within that district.

• At AED 750 sq m per annum, industrial rental values in ADAC-Free Zone are the most expensive. By contrast, weaker demand for free zone stock in Abu Dhabi means that units in Musaffah and ALMARKAZ are priced lower.

1,200,000

1,000,000

800,000

600,000

400,000

200,000

02009 20112010 2012 2013

Source : ADPC

Figure 4

Khalifa Port container volumes (TEUs)

1200

1000

800

600

400

200

02009

*all rental rates are net of municipality and authority charges and taxes, and are collected from selected comparable transactions, valuations and asking prices.

Mussafah ICAD 1Kizad (non FZ) Abu Dhabi airportALMARKAZ

20112010 2012 2013

Figure 3

Rental rates

Figure 5

Enquiries by sector, Q1-Q3 2013

AED

/ s

q m

per

ann

um

Abu Dhabi International Airport View• Cargo traffic continues to set the pace for the airport’s growth, and we expect this trend to continue. In October, Etihad Cargo and Singapore

Airlines (SIA) Cargo reached a deal to allow Etihad to use space on SIA’s cargo service to London’s Heathrow. In return, SIA will use space on

Etihad’s cargo service to Frankfurt.

• Fedex Express recently opened a 31,000 sq ft facility at Abu Dhabi Airport as part of its expansion drive. Reports suggest that the building will

be equipped with the latest technology capable of sorting 3,000 packages per hour.

• So far this year, Skycity warehouses at ADAP have seen falling vacancy rates as demand from key international occupiers, including CEVA

Logistics and Agility, has risen.

• Finally, a contract has been awarded to build Abu Dhabi’s new 7.5 million sq ft airport terminal. The project comprises the construction of the

Midfield Terminal, with an initial capacity of 30 million passengers. It is expected to be completed in July 2017.

Source : Knight Frank

Tech 7%

Pharma and Medical 8%

Logistics and Freight 18%

Plant, Engineering & Construction - inc O&G 22%

Food and beverage 22%

Other 23%

Source : Knight Frank

Forecast

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ResearchKhawar KhanResearch ManagerD: +971 4 4512 000M: +971 56 1108 971Khawar.Khan@me.KnightFrank.com

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Technical Note

• Warehouse accommodation has been sub-divided into Class 1 and Class 2, reflecting high and low quality respectively. Whilst subjective, this categorisation is based on an assessment of each property’s age, specification, quality of build, location, situation, site coverage and operational efficiency.

• European specification and quality although subjective indicates that the building is consistent with what has become the institutionally acceptable investment standard for logistics and warehouse accommodation across Western Europe. Industry standard specifications would generally include raised dock entry set at approx. 1.3m, 1 dock per 10,000 sq ft of warehouse floor area, 2 level entry doors, 10% office content, 10m clear internal height, a site density not exceeding 50%, floor tolerances to allow free movement fork lift truck (FLT) operation according to height of building, temperature control, fully insulated external roofing and cladding system and a minimum 10 percent roof lights.

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