RIYADH: The Saudi capital Riyadh has recorded a 22 percent growth in annual warehouse rental rates by the end of the third quarter of 2022, as the Kingdom witnesses a strong demand for high-quality and special facilities, reveals the latest data from global property consultant Knight. Frank.
This comes as Saudi Arabia sees an increase in activities in the manufacturing and logistics sector amid the Kingdom’s push to develop a local hub as part of its strategy to diversify its economy away from industry. of oil.
“The manufacturing sector is rapidly emerging as a key pillar of the government’s industrial strategy, currently accounting for 8.3 percent of GDP (Gross Domestic Product).
Government-led incentives to boost domestic production of goods are attracting local and international investors, as well as boosting overall activity in this subsector,” said Faisal Durrani, co-head of the Middle East. Knight Frank research.
He added: “Separately, the pandemic has prompted an increase in online retail that has fueled a sustained boost in warehouse requirements. And in Saudi, the same trend holds, with 90 percent increase in online shopping volumes/values over the past 12 months.
Warehouse rent in Jeddah also increased by 22 percent over the same period and now averages SR179 ($48) per square meter, with an occupancy level of around 96 percent at the end of their quarter, data revealed in Knight Frank.
Durrani pointed out that government-led initiatives to develop the manufacturing sector are also contributing to the “disparity between demand and supply”, especially for internationally specified, high-quality warehousing facilities and last mile logistics facilities.
“Unsurprisingly, when coupled with the acute shortage of high-quality warehouses, rents in cities such as Riyadh now stand as high as SR250 per square meter, representing an increase of 22 percent over the past 12 month, with an occupancy of 96 percent,” he added.
The increase in demand for high-quality spaces is driven by several sectors including pharmaceuticals and automobiles as the Kingdom pushes to become a logistics powerhouse, with the value of exports also increasing by 23 percent. only in 2021, says Knight Frank.
“In fact, the need for logistics hubs is now an important driver of demand. Other manufacturing industries such as pharmaceuticals and the automotive production sector are also contributing to the increased level of warehouse requirements ,” said Harmen de Jong, partner – Real Estate Strategy & Consulting at Knight Frank.
He pointed out that the lack of supply has become a legacy issue for the market and as the economy changes rapidly, the lack of high-quality warehouse sustains high pressure on rents. “As more retailers strengthen their online presence, the challenge of finding high-quality warehouses will grow more acute.”
With continued growth in warehouse demand, Knight Frank expects the market to continue to face upward pressure on rental rates, “which is unlikely to change until better quality stock comes in.” in the market.”
“Subject to the speed of construction and if there are no delays in the announced schemes, we expect a marginal 5 percent increase in warehouse supply in Riyadh by 2025,” said Andrew Love, partner – Head of Occupier -Landlord Strategy & Solutions and Head of Middle East Capital Markets at Knight Frank.
He added: “As it stands, the city’s existing stock is mainly low-quality, aging warehouses located near the city’s dry docks, which are the opposite of what occupiers are looking for: high-quality, modern facilities, built to international specifications.”
Market trends
The industrial sector in Saudi Arabia is undergoing rapid change, with the emergence of automated facilities. The Saudi Ministry of Industry and Mineral Resources has launched a program to automate 4,000 factories with the aim of raising the standard and ensuring that factories are built with the best global requirements, according to a Knight Frank press release.
“Industrial occupiers have also moved to cleaner energy sources, such as the installation of solar panels. Businesses expect to reduce operating costs as well as contribute to the Kingdom’s achievement of 2060 net-zero target,” Durrani explained.
As part of Vision 2030’s goal of using cleaner energy sources, Knight Frank said, many industrial occupiers are installing solar panels as they begin to transition to greener sources of energy. energy. Al-Munaijam Foods has installed more than 3,500 solar rooftop panels at its temperature-controlled warehouse in Riyadh that will reduce up to 38,000 tons of carbon emissions per year and 30 percent of total energy requirements.
It is part of a strategy to move away from traditional energy sources to renewables as the Kingdom looks to achieve its 2060 net-zero target, while also reducing operating costs for the business.