Saudi Arabia's warehouse rents boosted by strong growth in the manufacturing sector

[ad_1]

Warehouse rents in the Saudi Arabian cities of Riyadh and Jeddah jumped 22 percent annually in the third quarter, driven by increased activity in the manufacturing and logistics sectors.

Rents are growing as the country continues to diversify its economy away from oil and invest in a variety of industries to nurture domestic manufacturing.

A coronavirus-induced surge in online retail sales has helped boost demand for warehouse units in the two cities, global consultancy Knight Frank said in a report on Monday.

Rents in the capital, Riyadh, stand at 250 Saudi riyals ($67) per square meter. Warehouse rents in Jeddah averaged 179 riyals ($47.73) per square meter, and the occupancy level was about 96 percent at the end of the third quarter.

“The manufacturing sector is fast emerging as a key pillar of the government’s industrial strategy, now accounting for 8.3 percent of GDP; [gross domestic product]” said Faisal Durrani, a partner in the Middle East research group at Knight Frank.

“Government-led incentives to boost domestic production [are] Attracting local and foreign investors as well as boosting overall activity in this sub-sector.”

As part of its Vision 2030 strategy, Saudi Arabia, the Arab world’s largest economy, plans to expand its industries, The manufacturing and mining sectors are expanding.

Last year, the state-run Saudi Press Agency launched a national investment strategy that seeks to attract 388 billion in foreign direct investment annually.

Earlier this year, Lucid Group, the carmaker backed by Saudi Arabia’s public investment fund, announced plans to set up a factory in the kingdom.

US-listed Lucid, Saudi Arabia’s Ministry of Investment; Saudi Industrial Development Fund and King Abdullah Economic City (Kaec) signed agreements with the economic city to build a factory.

Saudi Arabia’s ambassador to the United States, Princess Reema bint Bandar, gave a speech at the Future Investment Initiative conference in Riyadh. Reuters

In April, Saudi Arabian Military Industries (Sami) also signed a preliminary agreement with Boeing to form a joint venture focused on the kingdom to localize manufacturing in the country and create more jobs in the country.

Last week, the state launched its first electric car brand “Ceer” which will support its car manufacturing sector.

Saudi Arabia also plans to build three iron and steel projects worth $35 billion as it seeks to develop its industrial sector as part of its economic diversification plan.

Government-led efforts to boost the manufacturing sector have also contributed to the mismatch between supply and demand, particularly for internationally designated high-quality warehouses and last-mile logistics facilities, Mr Durrani said.

While demand for logistics centers is driving demand; Other manufacturing industries, such as pharmaceuticals and car manufacturing, are also contributing to rising warehouse demand, the report said.

“Continued growth in warehouse demand will keep pressure on rental rates, which is unlikely to reverse until better quality stock enters the market,” said Andrew Love, head of Middle East capital markets and landlord strategy and solutions at Knight Frank.

“Assuming the pace of construction and no delays in announced plans, Riyadh’s warehouse supply is expected to increase by 5% by 2025.”

In an indication of rapid changes in the industrial sector, the Saudi Ministry of Industry and Mineral Resources has established a program to automate 4,000 factories, Knight Frank said.

Meanwhile, as part of Vision 2030’s aim to use cleaner energy sources, industrial tenants in Saudi Arabia are installing solar panels as they begin to transition to greener energy sources, the consultancy said.

A key point is that Al-Munaijam Foods has installed more than 3,500 solar roofs in a temperature-controlled warehouse in Riyadh, helping the kingdom become carbon neutral by 2060, it said.

Saudi Arabia’s economy has rebounded strongly from a pandemic-induced slowdown thanks to higher oil prices and government initiatives to support the economy.

The country’s economy grew by 8.6 percent in the third quarter of 2022, according to projections from the country’s General Statistics Authority (Gastat) last month. According to the International Monetary Fund, it is forecast to grow by 7.6 percent this year.