Rental rates and occupancy levels in Saudi Arabia's industrial and logistics zones are likely to soften over the short and medium term due to fallout from the coronavirus crisis, a report has found.
The Industrial Market Review H1 2020 by Knight Frank Middle East said the outlook for Saudi Arabia’s industrial, warehousing and logistics sectors is likely to be challenging in the short to medium term.
Macroeconomic factors such as the expected contraction in the kingdom’s GDP of 6.8% in 2020 on the back of strict lockdown measures, the collapse in oil prices and oil production cuts are likely to curb demand, the report found.
It said moves such as that by the Saudi Industrial Development Fund (SIDF) to reschedule loan payments for small and medium enterprises (SMEs) and medical factories, as well as providing finance for pharmaceutical and medical supplies producers, would help mitigate the shock to the economy.
Saudi Arabia’s National Industrial Development Logistic Program (NIDLP) is seeking to position the kingdom as a leading industrial destination and a global logistics hub for the mining, energy and logistics sectors, the report continued.
The programme aims to provide financing, development of infrastructure, expansion of digitisation procedures and to enhance research, innovation and training.
Improvements to Saudi Arabia’s soft infrastructure mean the kingdom’s ease of doing business ranking has improved from number 92 in the world in 2019 to 62 in 2020, the report said.
A major part of Saudi Arabia’s industrial and logistics development infrastructure is provided by the Saudi Authority for Industrial Cities and Technology Zones, which currently has 35 industrial cities which are either completed or under development, spanning almost 200m square metres across Saudi Arabia.
In Riyadh, this accounts for 73% of the total developed area, while the remaining 27% has been developed by the private sector.
The capital has around 23m square metres of available warehouse and logistics space while over the last five years, Jeddah’s warehousing and logistics landscape has reached approximately 17.2m square metres.
Rental rates in Riyadh and Jeddah dropped by 5.4% and 4.0% respectively in the first quarter of 2020, the report found.
Occupancy in Riyadh’s warehousing and logistics sector decreased by four percentage points in the year to Q1 2020, standing at an estimated 90%.
In Jeddah, occupancy increased by three percentage points in the year to Q1 2020, to 93%.
“Low-quality warehouses are expected to see reduced levels of demand in the coming years, as prospective tenants will more likely demand better designed, sustainable, high-quality premises,” the report added.
“The potential growth of e-commerce is expected to become a major driver of change in the logistics sector.”