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Covid-19 Economy Impact
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Impacts of changing international trade on industrial zones

Changes in consumer habits are leading to massive increases in infrastructure spending, and the modernization of existing logistics hubs, industrial zones, and supply chains, putting emerging industrial real estate markets on the radar of both occupiers and investors.

Over the past few years, trade and geopolitical tensions, technological advancements and rising transportation costs have led companies to diversify and regionalize their supply chains.  This trend has accelerated with the onset of COVID-19.

Andrew Armstrong, Associate Director and Head of Industrial and Logistics Agency at CBRE commented, “Supply chains are going through immense change at a time when consumers are purchasing goods online at a record pace.  E-commerce is forcing companies to keep larger and more diverse inventories in closer proximity to end-users. Inventory control failures in the first half of 2020 - when many companies could not fill orders efficiently - have vividly illustrated the urgency of having more inventory on hand to support online sales. The combination of inventory controls, consumer habits, population growth, and transportation strategies will benefit growing seaports throughout the world and will increase the importance of inland ground, rail, and air freight hubs in every region.”

Globally, these changes are leading to massive increases in infrastructure spending and modernization of existing logistics hubs and will put emerging industrial real estate markets on the radar of both occupiers and investors.

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Supply chain restructuring

Rising labor costs in China and ongoing trade disputes have prompted many global manufactures to diversify supply chains throughout Asia, and as a result of COVID19, global occupiers with an over-dependence on one country or region may reassess their sourcing and manufacturing strategies. 

Whilst it is expected that significant reshoring of manufacturing facilities will happen, a widespread exodus of China is unlikely due to the sophistication of the industry, maturity of the supply chain, and China’s massive domestic consumer market.

As the global economy restarts, adjustments to supply chains will increase the demand for warehouses space. Retailers and wholesalers will store months rather than weeks’ worth of inventory, particularly essentials, closer to population centers and service locations. The COVID19 crisis has unveiled the frailty of just-in-time (JIT) production networks and the long-established practice of maintaining lean inventory levels which have been susceptible to closed manufacturing facilities, ports, and borders.

Middle East outlook

The Middle East is well-positioned to benefit from supply chain diversification due to its geographical position between east and west, but also due to previous significant investments into the logistics sector and ongoing pipeline:

  • Khalifa Port in Abu Dhabi is extending its existing terminals to increase capacity from 2,500,000 TEU’s to over 15,000,000 TEU’s in 2030.
  • Jebel Ali Port is adding to its capacity via a high-tech high bay container storage system, which will increase capacity at Terminal 4 by over 200%.
  • Etihad Rail, once complete, will be a 1,200 km rail network connecting the UAE to KSA in the west, and Oman in the east.
  • Suez Canal Economic Zone is a free trade zone and provides passage for approximately 8% of annual global trade, is investing $550 million in a container port and yard from DP World and an Egyptian- Russian JV which will build out and manage a 5.25 sq km industrial zone over 13 years with a total project value of approximately $7 billion.
  • Al Khomra Zone in Jeddah is a new logistics zone providing opportunities for private investors, which extends over 2.3 million sq m.
  • Integrated Logistics Bonded Zone (ILBZ), in Riyadh, is the first bonded zone in KSA with the goal of creating a fully bonded, flexible sustainable logistics development.
  • Saudi Landbridge is the Kingdom’s railway expansion project, master-planned to deliver an estimated 9,900 km of additional railway and improve the connection between Jeddah in the west and Dammam & Jubail in the east via Riyadh.

To read the CBRE report, click here.

Photo Credit: Axel Ahoi on Unsplash

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