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UAE economy hits sweet spot

The outlook for the UAE remains positive for 2017 as oil prices have regained some of the losses recorded in 2016, a leading real estate consultancy said.
"This is expected to boost government revenue and increase spending, particularly on infrastructure and development projects. In light of this, preparations for the Expo 2020 will go ahead, with investments focused on the expansion of the metro, airport and roads network along with tourism facilities and real estate within Dubai," Knight Frank said in an insight report on UAE industries and logistics.
"Investments in these sectors are expected to support the overall growth of the economy. However given the UAE's position as a regional hub, we remain cautious of external challenges which may hinder economic growth," analysts said.
"On-going global political remained flat for Dubai South built stock. Uncertainties are likely to impact the performance of financial markets, which in turn will dent investor sentiment and appetite." Charles Swanson, Surveyor, UAE Industrial Leasing. "Any decision by the US Federal Reserve to further increase the interest rates will strengthen the dollar and consequently the dirham. This will likely put pressure on the cost of living and challenge the competitiveness of the UAE," analysts said. Fawad Razaqzada, Technical Analyst, FOREX.com, said oil is becoming more and more stable because of expectations of a much tighter oil market this year. The deal to limit oil output by the Opec and some countries outside of this group has been implemented and production has started to fall.
In addition, on-going global political uncertainties are likely to impact the performance of financial markets, which in turn will dent investor sentiment and appetite. Amongst these are; the new US administration and potential protectionist measures; Brexit and the trigger of article 50; and a stream of elections across many EU countries, Knight Frank said.
In the UAE, investments in industrial infrastructure and facilities continued to grow in 2016 despite economic headwinds, largely driven by government and government related entities.
Such continued investments underline the UAE's vision to become a more diversified economy and elevate the country into a global hub for sustainable and innovation focused businesses, Knight Frank said in a report.
Major industrial projects and growth areas in 2016 include Khalifa Industrial Zone Abu Dhabi, Dubai Industrial City, Dubai South and an expansion of Dubai Airport Free Zone and in the northern emirates, the Sharjah Asset Management recently launched Al Saja'a Industrial Oasis.
However, demand for industrial warehousing saw a modest decline in 2016, as a result of economic headwinds such as a low oil price, a strong US dollar and global instability. Rents for Grade A warehousing remained flat in 2016 despite an overall decline in demand, due to a lack of supply. However, rents for grade B warehouses have further declined in 2016, the report said.
In Dubai, there is a growing appetite for industrial property as an investment asset due to the attractive yield profiles and perceived resilience to adverse economic conditions.
Grade A industrial rents have remained flat on an annual basis, partly due to a lack of quality warehousing in the emirate, particularly in on-shore locations while Grade B industrial rents have witnessed year-on-year declines of 13 per cent on average across various submarkets as expected with often poor and outdated stock.
Major demand in 2016 was from the general trading; industrial manufacturing; logistics and SME sectors. Around 11 per cent of enquiries are from SMEs, seeking onshore warehousing of less than 5,000 sq ft BUA. There has been a decrease in medium sized enquiries and transactions for circa 50,000 sq ft BUA warehouses, with occupiers postponing major purchasing decisions.
In Abu Dhabi industrial market, areas with poorer quality warehousing and infrastructure such as Musaffah, have seen declines in rent in the region of nine per cent in 2016.
In 2016, the largest number of enquiries came from the general trading sector, comprising 26 per cent of total interest while 15 per cent and 13 per cent of enquiries coming from the SME and IT sectors respectively. Enquiries from the construction sector were down to 10 per cent of total enquiries in 2016 compared to 50 per cent in previous years.
In Sharjah, industrial rents are 30-40 per cent less than the average for grade A warehouses in Dubai.   "Strong market fundamentals, property rights and cost savings to businesses, make Sharjah industrial a sector to watch in 2017," Knight Frank said.
Demand for industrial property continues to grow in Sharjah, particularly driven by the movement of occupiers from older, poorer provisioned industrial parks to newer industrial areas with better infrastructure.
- issacjohn@khaleejtimes.com