UAE Among The Most Affordable Locations For Warehousing Operations Globally

Savills, the leading global real estate advisor, today released its warehouse costs ranking analysing +50 markets across 21 countries as part of its Impacts research programme. According to the new research, total costs (including labour and energy costs, in addition to rents, taxes and service charges) make London, Stockholm and Tokyo the top three most expensive locations in the world to take warehouse space, with Gothenburg and Hamburg taking fourth and fifth place.

Very low labour costs coupled with extremely low energy costs make operations in Vietnam the most affordable location, led by Hanoi.  These low costs make Vietnam highly attractive to multinationals setting up operations in the country, but the government is actively targeting higher value companies. India, also characterised by very low warehousing property costs, is the second most affordable location in our sample.

In the UAE, warehousing property and electricity costs are higher than in India and Vietnam, but these are offset by the lowest diesel costs, contributing to its position as one of the least expensive locations for warehousing operations globally. According to Swapnil Pillai, Associate Director – Research at Savills Middle East, “The UAE has seen stable warehousing occupancy and rents, with take up led by e-commerce companies. Across the Middle East, warehouse demand has been strongest in established markets such as Dubai and a few emerging locations across Saudi Arabia and Egypt. This trend is likely to firm up over the next few years as logistical challenges are addressed and real estate and business infrastructure (ecommerce) further matures in these markets.”

Underlining the importance of quality infrastructure, Swapnil added: “End-user demand is likely to remain strong for automated build-to-suit, temperature-controlled centres with high quality specs and new technologies. We are fortunate to be operating in the UAE market, which is always committed and active in continuously investing in the development of its infrastructure and technology, enabling it to have one of the strongest logistics sectors, fit to withstand any potential crisis, whether on a regional or global level.”

If considering property costs alone (rents, taxes and service charges) London, Tokyo, Hong Kong, Singapore and Sydney are the top five most expensive locations in Savills warehouse costs ranking, but once the other costs warehouse occupiers face are factored in, many European cities leapfrog other Asia Pacific destinations. This is significant, says Savills, given many European countries are currently behind the UK and Asia Pac in terms of e-commerce penetration, although adoption is rapidly accelerating due to Covid-19, and therefore competition for good value, quality warehouse space is only going to heighten in the coming years.

According to Savills, on average taxes and service charges account for 19% of total property costs. Labour costs are typically the single largest component of a warehousing operation, usually making up more than half of all operational costs, at an average of US$11 per employee per hour, while electricity and diesel costs for the running of buildings and vehicle fleets, are also a major factor in warehousing operations.

Marcus de Minckwitz, Director, Savills Regional Investment Advisory EMEA, said: “Pressure on costs is only going one way: the booming e-commerce sector is driving demand in a majority of markets, although this may be offset slightly by some bricks and mortar retailers scaling back operations. While occupiers’ options may be limited – after all you can’t service last mile deliveries in London from a warehouse in Rome, just because the latter’s costs are lower – the analysis does show the relative costs of warehouses between countries if you are looking to take space for a major regional distribution centre from which to service several markets and indicate the competition you may face in these locations. Record take-up of space across Europe in 2020, for instance, has driven down vacancy rates to just 5% across the continent, with further falls anticipated.” 

Paul Tostevin, director in Savills World Research team, added: “Increasingly, cost alone will also not be the only driver of location strategy. The shift to low carbon technologies means that the need for high-capacity power supplies has increased. Long term strategies will include ever greater emphasis on the ESG agenda. Online retailers are leading the way in reducing their carbon footprints, and are demanding warehouses that meet tough environmental criteria, leaving older assets that don’t at risk of a ‘brown discount’.  This is likely to further pivot occupier demand to high quality Grade A space, with rents increasing to match the higher quality stock on offer.”