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How will UAE’s logistics and industrial sector grow in coming years?

Article-How will UAE’s logistics and industrial sector grow in coming years?

Ian Albert, CEO of Colliers MENA, sheds light on the trends, developments and investment opportunities shaping the warehouse, industrial and logistics space in the UAE in a recent interview with Cityscape Intelligence’s Teneshia Naidoo

The warehouse and logistics space is undergoing a period of evolution in response to technological advances and other key drivers that are influencing changes in demand.

We have seen many major developments within the logistics and industrial sectors of the UAE and other countries across the GCC, with the proliferation of industrial zones and free zones driving and supporting the local and international manufacturing and industrial sectors.

But a recent rise of automation and value-added services has brought rapid changes to the sector globally, transforming the way that warehouses operate, and redefining the way that the industry thinks about warehousing and logistics.

This progress could offer a dynamic future for the UAE and the region, offering some genuine investment opportunities - from 3PL logistics and operational outsourcing through to automation which streamlines everything from inventory to productivity within warehousing.

Manufacturing – slow and steady wins the race

The manufacturing sector makes up 10% of GDP for the UAE. Before coronavirus and the lockdown, growth in manufacturing was steady but healthy with highlights including KIZAD, the region’s largest industrial zone which is home to over 600 different companies, and DP World, investing in smart trade, new technologies, and innovation, as well as free zones across the Emirates.

While COVID has asked some complex questions of various industries, it could provide a genuine opportunity moving forward. The global supply chain was without doubt heavily impacted by the pandemic and the subsequent restrictions placed on travel, and this will likely persuade governments to invest heavily in local manufacturing. 

There is a real opportunity to produce locally in order to become less reliant on international supply, and the recent months of crisis management could persuade businesses to become more aware of the need to invest locally. Investment in production lines, retailers and suppliers will fulfill the growing demand of fast but quality products that can cut out long-term costs and third parties.

This shift will not happen overnight, but we are likely to see the foundations being laid for future expansion of the industry and action plans coming into play in the coming months and years.

Dubai Commercial

Logistics and Warehousing – room to grow

Pre- COVID, e-commerce had been growing steadily as players in the UAE retail sector caught up with the demand for more online shopping and the decline of the need for retail space. This demand has only increased due to COVID, and the local lockdown and the restrictions placed on travel worldwide.

This dramatic shift in consumer behavior has led to surging demand and an increased need for warehousing space from retailers, to support and maintain growth in this thriving and transforming sector.  

Changes include an increase in the number of fulfillment centers - support facilities that ensure the efficient preparation and delivery of products to the growing online audience.

Dropshipping has also emerged as a retail fulfillment method for some brands, whereby items are shipped directly from a third party to a customer rather than being stored and transported by the brand.

There is also a huge opportunity regionally for governments and investors in ‘on-demand warehousing’. This Airbnb style arrangement for logistics allows empty space within warehousing to be let out for customers requiring extra space.

Manufacturers and warehouse owners simply advertise free space online or on an app and retailers and brands can secure warehouse and fulfillment solutions without any need for setup fees or long-term commitments.

This marketplace model has proved to be a scalable and flexible solution to warehousing in the US, UK and other countries, and the format can offer huge success for retailers during peak periods, where demand spikes can be between 3-5x higher than normal.

Recent data supports these transformative changes in approach to warehousing – almost 60-75% of customers have confirmed that they are willing to choose different retailers depending on the speed of delivery time, meaning that any investment in improving warehousing and logistics is likely to pay for itself in the long term.

How technology will shape what is to come

All future growth in the region will require a strong foundation and investment on the technological side, with AI and robotics needed to improve speed, efficiency and overall quality control, and the Internet of Things fundamental in bringing all the pieces to together in the supply chain.

What we can learn from this global pandemic is that now is not the time for retailers to shy away from investment - on improved technology and development within the industry. It is evident that the next phase for buyers and consumers will be linked to a price-premium relationship with the speed of delivery. This new structure and outlook for the industry is not difficult to achieve within the UAE, as the infrastructure is already in place to successfully roll out this modern approach.

The growth within the UAE’s industrial and logistics industry has already proven itself to be one that will sustain itself for years to come, and that growth will only continue to exceed expectations with continued investment and improvement. 

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