KSA Warehousing Sector · 2020. 9. 21. · of Warehousing Services 3 1 2020 | KSA: Warehousing...

KSA Warehousing Sector COVID-19 impact, industry evolution and city overview

Colliers International SurveyJune 2020

COVID-19SURVEYRESULTS

Survey contributors

Survey contributors by city

Source: Colliers 2020

31%

15%31%

23%

35%

6%

3%

24%

24%

9%

Landlord

Occupier

Service provider

Investor

Riyadh

Jeddah

DAK

Makkah

Madinah

KAEC

Jeddah

Makkah

DAK

Madinah Riyadh

KAEC

Introduction

This paper examines the key drivers and factors influencing the evolution of KSA’s warehousing industry.

Colliers conducted a survey in May 2020 to anonymously gather and provide real data to capture market sentiment on the COVID-19 impact and the potential future of the Kingdom’s storage solution sector.

We expect the warehousing sector to embrace structural revisions as a response to rapidly changing demand drivers and technological advances. This paper will additionally capture the demand-supply dynamics and drivers in the cities of Riyadh, Jeddah and DAK (Dammam and Al Khobar). This paper will briefly touch on logistics and supply chain disruptions while in-depth details on logistics implications will follow on a future publication.

Advances in technological applications, increasing levels of technological integration, economic reforms and rapidly evolving demand drivers are further accelerated by COVID-19. The Kingdom’s diversification efforts are creating an ecosystem where non-oil economies will thrive. Potential influx of FDIs paired with investments in infrastructure and logistics capabilities & capacities will provide new opportunities.

Survey contributors are leading players across the major cities in KSA.

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The warehousing industry is exhibiting healthy growth, while technological advances continue to be a key driver. The rise of automation and value-added services to attain competitive differentiation is changing the way warehouses operate, leading to a dynamic future across the globe.

Key TrendsWe see organisations embracing automation by leveraging on technology in data-driven capacities as well as infrastructure, and big data to minimize errors and improve space utilization. These technologies assist with all aspects of warehousing tasks to increase productivity.

Source: Colliers 2020

Source: Arab News, 2019

The focus is on connectivity supported by API’s (Application Program Interface), which allow applications to collect data from warehousing information systems. This ultimately allow the logistics market to capitalize on multi-modal optimization through integration with the participants of the supply-chain.

The adaptation of IoT (Internet of Things) focuses on communication and collaboration, in order to provide real-time data to improve efficiency. IoT adaptation improves inventory management, maintains a clearer chain-of-custody, supports real time tracking, scans barcodes, tracks, and reports to support end-to-end supply chain.

On-demand/pop-up warehousing is a relatively new business model which allows access to warehousing solutions without the need for long term commitments. On-demand marketplaces operate a network of warehouses or fulfilment centers. For example, companies can choose to lease non-operational warehousing space during off-seasons (ex: non-holiday) and when experiencing demand reductions

Home Centre KSA has commenced construction of its first fully automated national distribution center in Sudair. It operates Automated Guided Vehicles (AGV) in conjunction with automated conveyor systems. It sits at a site area of 150,000 sq. m. on a lease from the MODON industrial area, with a BUA of 45,000 sq. m.

Only a small percentage of responses indicated a high level of automation take-up. This could indicate investment opportunities within this spectrum.

Saudi Arabia

24%

9%

0% – 25%

26% – 50%

51% – 75%

76% – 100%

Automation take-up (rough percentage estimate)

50%

0%

43%

7%

Evolution of Warehousing Services

3Q1 2020 | KSA: W

arehousing SectorCOVID-19 im

pact, industry evolution, city overview

GovernmentSaudi Arabia’s non-oil GDP is recorded at a 3% appreciation for 2018 which is the fastest pace since 2015. 2020 brings a challenging economic climate and the importance of monetary, fiscal and structural policies aimed at the expansion of the non-oil sector over the medium term is realized.

Regulations to improve standards such as removing height restrictions, new storage tracking & hygiene measures on FMCG and Pharmaceutical products would lead to requirements for high-spec warehouses.

2030 Vision, an initiative to identify and create growth opportunities, stimulate the private and public sectors and attract Foreign Direct Investments (FDIs) while focusing on improving infrastructure and ultimately bring new players and innovations into the market.

The government will provide additional support to SME’s which will potentially lead to growth in demand for alternative storage solutions such as on-demand warehousing/pop-up warehouses/ flexible spaces and so on.

KEY DRIVERS OF CHANGE

Ongoing Efforts to achieve the Vision’s 2030 Goals

National Industrial Development and Logistics Program was announced by the government in 2019 to position KSA as a logistics hub.

Increase in fiber-optic network capacity to cover 700,000 houses across the Kingdom in 2018.

Extended wireless broadband coverage to include 128,000 houses in remote areas.

Al Khomrah Logistics Zone Project was announced by Ministry of Transport in Jeddah.

The Integrated Logistic Bonded Zone (ILBZ) at King Khalid International Airport to deploy new intelligent logistics solutions.

The capital of the Saudi Industrial Development Fund (SIDF) has been increased by SAR 6 bn in 2019 to help finance the Kingdom’s industrial sector, including entry into new industries.

Key Drivers of Change

The 4 key drivers identified within this section of the report will have a potential impact on all sectors of the economy: government’s increased focus on non-oil sectors, embracing technological advances, implementation of omni-channel networks, and supply chain revisions will ultimately reflect structural changes in the storage solutions industry as the market continues to evolve.

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Source: Logistics IQ, 2020

Saudi Arabia E-commerce Market Cap & Projection ($ USD mil)

TechnologyConnectivity driven by internet has led to more efficient flow of goods and faster problem solving. ‘Same-day delivery’ is implemented as a response to changing demands, while the rise of automation software has impacted most industries across the globe.

We can foresee a scenario where adaptation of IoT will be prevalent across the industry, as the focus on customization and providing real-time data increases. Investment in streamlining processes through leveraging tech integration will be an area to monitor moving forward.

E-commerce in Saudi Arabia has shown positive growth trajectory since 2014 and this trend is expected to continue.

Retail Omni-ChannelThe increasing adaptation of e-commerce as a result of restrictions posed by the COVID-19 pandemic will potentially shape buyer-behavior in the mid-long term. Big retailers such as Carrefour and Abu Dawood are reporting an increase in online sales of up to 200% - 300% and expecting an escalating growth trajectory in the mid-term.

The population in Saudi Arabia can be characterized as a young, technologically literate group with high spending power. According to the General Authority for Statistics (GaStat), mobile phone usage in KSA reached 99.61% in 2018 and the average time spent online per day by consumers in the Kingdom was 6 hours and 45 minutes, which is 15 minutes more than the average American consumer.



4168

3076

2017 2018 2019 2020 2021 2022 2023 2024

4930

6076 67

73 7245 72

60 7992

5Q1 2020 | KSA: W



Source: Colliers, 2020


Orders cancelled or put ion hold

Supply chain interrupted

Receivables being delayed

We are experiencing significant decrease in demand for goods

We are experiencing significant decrease in revenue

13 %

4 %

35 %

26 %

22 %

Supply ChainThe global focus to reduce supply side risks and increase diversification of supply has led to the development, implementation and management of business continuation strategies.

More than 200 of the Fortune Global 500 firms have a presence in Wuhan, the city where the COVID 19 outbreak originated. Companies whose supply chain is highly dependent on service providers and suppliers in China are facing disruptions.

The impact of COVID-19 has highlighted the need for, and increased demand of, the development and implementation of supply chain risk management with concurrent business continuity strategies.

New solutions to the existing supply chain models are underway. As they are characteristically dependent on a chain of variables, this makes them all the more vulnerable to external risk factors.

Increasing focus on realizing points of failure and reducing the margin of error along with asset-optimization and cost-minimization will be priorities in the medium term.

Technological integration to the supply chain network will work towards mitigating these risks and streamlining processes in the future.

The local warehousing market could benefit in the mid-long term as many businesses look to concentrate on local entities to fulfil their supply chain requirements.

Market sentiment indicates that an increasing level of demand has been unmet due to supply chain interruptions, resulting in order cancellations and delays.

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Source: Colliers

Workshops, Warehouse & Logistics Districts, Industrial Cities

High Growth Potential

Mid Growth Potential

Low Growth Potential

Key Challenges > Subdued performance of key feeder sectors (FMCG’s, Automotive, Furniture, Construction).

> Large areas of warehousing lands are occupied by an aging supply of conventional warehouses.

> Concentration of industrial lands in the southern zones, away from demographic expansion and population centers.

> Automation of warehouses that tend to be more capital intensive than prior versions of warehouses.

> The accelerated pace of change in the retail industry and changing demand preferences are causing increased uncertainty on future fulfillment requirements.

Market Directions and Potential Movements > Arising opportunities will cater to changes in the retail industry through high-specs storage and fulfillment centers.

> Built-to-Suite warehouses that maximize efficiency and minimize overall costs.

> Due to technology advancements and allowance for more storage height, demand for consolidated high-spec storage facilities is increasing. Fluffing this demand would require experienced developers and suitable blocks sizes in well designed masterplans to allow for advanced infrastructure and heavy traffic of long, medium and small vehicles.

> Last-mile delivery is creating demand for facilities in certain geographical pockets located less than 1-hour from main consumers hubs in the north, north east and north west of Riyadh.

> There is high potential for Self and Micro Storage. Ideal location for this product would be in close proximity (15 to 30 minutes driving time) to major residential hubs and main business districts.

Warehouses & Logistics Supply

24.5 M Sqm

Population

6.8 MSupply Per Capita

3.6 Sqm

Market Wide Occupancy

79%

Riyadh GDP

623 bn SAR

Employed Population

3.1 M

Retail Spending

85 bn SAR

RiyadhMarket Landscape Riyadh’s logistics and industrial areas are scattered throughout 5 zones, with the largest supply of warehouses and logistics & distribution centers (L&D) mainly concentrated in the southern zone, near Riyadh’s Dry Port and Modon industrial cities. Recently, the expansion in terms of warehousing and L&D development activity has been predominantly towards the southern zones in the form of private industrial masterplans in the immediate vicinity of Kharj Road. The northern zone has seen a moderate development of industrial and logistics supply over the past few years on the back of the demographic expansion towards the north.

Demand Projections (M sqm)

21.519.4

2020 2025 2030

23.8

(Data as on 2019)

Northern Ring Road

King Abdullah Road

King Salman Road

North Industrial Complex

Periodic Car Check

Sinayit Al Khaleej

Al FaisaliahAl Manakh

Ad Dif’aAl MasaniSinaeiat Aleasima

Al Shifa Mawrah

Al Shifa Bader

Tuwaiq Workshops

Al Masheal

As SulayAn

Noor

Ali Bin Ali Industrial Area

Al Oruba Industrial Area

Tharawat Logistic City

Second Industrial CityObeikan Industrial City

Industrial Gate City

Taya Industrial City

Al Fauzan Industrial City

Al Fanar Industrial City

Al-Ojaimi Industrial City

Zamil Industrial City

Development Industrial CityLogistics Park

Jabel Ali Industrial City

First Industrial City

7Q1 2020 | KSA: W



Source: Colliers





Jeddah Market Landscape Jeddah’s current warehousing districts are concentrated south and east of the metropolitan zones, with Al Khomra district – south Jeddah – being the major hub for warehouses and logistic and distribution centres (L&D) due to its proximity to Jeddah Islamic Port as well as Modon 1st Industrial City.

Key Challenges > The slowdown in occupiers demand has exerted downward pressure on the performance of warehouses in Jeddah, with market rents dropping between 10% to 15% over the past 2 years, with average market-wide lease rates for conventional warehouse dropping from SAR 150/sqm to SAR 131/sqm.

> Rent is expected to slightly decrease in the future before stabilizing, reflecting weaker market sentiment in the coming years. The drop in performance has been pronounced in newly-developed as well as obsolete projects located within Al Khomrah District.

Opportunities and Potential Movements > In light of the current uncertainty in the market and slow economic growth, the performance of the warehouse and logistics sector is likely to remain subdued in the short-term. However, the market is expected to pick-up in the future, as the positive economic impact of the Saudi Vision 2030 and the National Transformation Program (NTP) begin to materialize, raising spending and, consequently, demand for warehousing and logistics space.

> Furthermore, structural changes in the warehouse and logistics sector based on the adoption of new supply chain management practices and the potential growth of e-commerce is expected to drive up demand for logistics & distribution centers and modern warehouses with high-specifications.Warehouses &

Logistics Supply

26.1 M Sqm

Population


5.7 Sqm


75 %

Jeddah GDP

362 bn SAR

Employed Population

1.1 M

Retail Spending

56 bn SAR


21.719.5

2020 2025 2030

24.1

Al Kawthar

Al Nakheel

Al Jawhara

1st Industrial City

2nd Industrial City

3rd Industrial City

Al Khumra

Quwaizah

Al KawtharModon Oasis

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Source: Colliers





Dammam& Al Khobar

Market Landscape Existing warehousing and logistics supply in DAK (Dammam and Al Khobar) are primarily located across four major zones: Eastern, Northern, Western and Southern. The Eastern Zone comprises factories in the 1st Industrial City and warehousing and logistics facilities in the rest of the sub-districts. The Northern Zone comprises primarily light industrial (workshops), with warehouses and logistics in Ar Rabiyah and Al Khail districts. The Southern Zone comprises primarily light industrial (workshops) with warehouses and logistics within Ibn Sina District, the Western Zone comprises factories in the 2nd Industrial City, while warehouses & logistics are situated throughout the remaining districts.

Key Challenges > Rental rates in 2019 dropped by c. 5% – 10% in the warehouse and logistics sector on the back of economic slowdown, lower retail spending, alongside a drop in the employed population (16%). We expect rates to soften in the short-term.

> Warehouse supply has reached nearly c. 20.9 million sqm, with a potential development of c. 3.9 million sqm. The recent slowdown in economic growth, along with decreasing rents will likely slow down the development of warehouses in the short-run.

> Future supply is expected to be limited as developers delay development of new projects until market conditions progress.

Opportunities & Potential Movements > Rental rate is expected to improve in the medium to long-term, driven by structural changes in the retail sector as well as government initiatives such as Vision 2030.

> The National Industrial Development and Logistics Program is focused on transforming Saudi Arabia into an industrial powerhouse, which is expected to drive up demand for logistics and warehouses over the medium to long-term.

> In the medium to long-term, structural changes in the industrial and retail sectors are expected to drive up demand for well-located and high-specs warehouses and logistics & distribution centers that will cater to online retail (E-commerce) companies as well as major logistics operators and retailers.

Warehouses & Logistics Supply

20.9 M Sqm

Population


11.0 Sqm


~90%

DAK GDP

237 bn SAR

Employed Population

0.7 M

Retail Spending

34.7 bn SAR


20,7

18.7

2020 2025 2030

23.0

King Abdullaziz Seaport

Al Khalidiyyah Ash Shamaliyah

Al Khalidiyyah Al Janubiyyah

1st Industrial City

Al Manar District

Al Khair District

Al Khodaryah District

Ar Rabiyah District

Al Muhammadiyah District

Al Nahdah District

Sinayiat Alfawaziya

Sinayiat Al Thuqba

Indus-Comm

Warehouses Masterplan

Scoop Masterplan

Scrapyard

2nd Industrial City Ibn Sina

Al Taawun District

9Q1 2020 | KSA: W






Warehouse Automation

Survey Participants-Industry Breakdown Facility Type Breakdown

Food & Beverage Real Estate Logistics Services

Conventional Dry Storage Cold Storage Distribution Centers High-Spec Warehouses

50% of the survey participants believe that there will be less than 25% of automation take up in warehousing facilities in 2020.

The remaining 50% believe that there will be a 26%-75% take up in the automation of warehousing facilities.

SURVEY RESULTS

Participants view on automation take-up in warehousing facilities in 2020 (rough percentage estimate).

76% - 100%

51% - 75%

26% - 50%

0% - 25% 50 %

29 %

21 %

SURVEYRESULTS

15%

36%

54% 21%

31%

25%

18%

0

% o

f tot

al re

spon

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s

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Warehouse Automation

Current C19 Impact

We are considering expanding our operations due to sudden increase in demand

We are starting to restrict spending because of uncertainty

The market is causing us to seek financing (overdraft, others)

Orders are being cancelled or put on hold

Receivables are being delayed

We are experiencing significant decreases in revenue

We are experiencing significant increase in demand for our goods and/or services

Supply Chain is interrupted

We have completely or partially closed our physical place of business

Positive (Increase in demand may cause us to consider expanding our operations)

Flat (no impact)

Negative low (this may impact us financially, but we are confident we can overcome the challenges)

Negative medium (this may significantly impact our financials)

Negative high (this may halt our business activities)

Increase

Decrease of more than 81%

Decrease of 61% - 80%



Decrease of less than 20%

11 %

14 %

14 %

7 %

11 %

7 %

16 %

2 %

18 %

29 %

14 %

14 %

14 %

29 %

The pandemic has led to major supply- demand discrepancies, supply chain interruptions and order fulfillment issues.

Majority of our survey participants indicated that COVID-19 had a significant impact on business over the short term.

Short term revenue impact has been recorded at a decrease of c.a. 20% to 60%. However, a small percentage of respondents noted an increase in performance, which may indicate superior operational efficiency and/or increase in demand.

How COVID-19 Pandemic has impacted general business operations at present.

COVID-19’s short-term impact on businesses in 2020.

Revenue impact on business operations for Q1 2020.

43 %

21 %

21 %

7 %

7 %

SURVEYRESULTSSURVEY

RESULTS

0

% o

f tot

al re

spon

dent

s%

of t

otal

resp

onde

nts

% o

f tot

al re

spon

dent

s

11Q1 2020 | KSA: W



Extend contract expiry date for customers

Big discounts on immediate payments

Extend credit facilities

Lift restrictions (if any) on minimum order amounts

Provide online solutions

Routinely share updates with customers and/or the public

Nothing - operate business as usual

Identify current and future business strategies to address customer concerns and difficulties:

Identify current business support that is required and the time-frame businesses expect to take to recover from the COVID-19 impact:

Business Support Required Recovery Timeframe Prediction

20 %

17 %

3 %

13 %

7 %

17 %

23 %

Advanced IT solutions Credit/Facilities from suppliers/financial institutions Financial government support Non-Financial government support

Less than 3 months 3 - 6 months 7-12 months 1 year and above

C19 Impact Outlook

We see businesses highlighting the importance of online solutions as part of their overall strategy moving forward.

Warehousing companies are seeking business support such as IT solutions and financing from both government & non-government sources.

The majority of respondents remain optimistic and aim to recover in less than a year.

SURVEYRESULTS


Source: Colliers, 2020Source: Colliers, 2020

% o

f tot

al re

spon

dent

s

15%24% 15%

46%

23%

24%

28%24%

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Identify factors that will increase the attractiveness of warehousing facilities over the next two years:

Identify market player sentiments on which industries/sectors will benefit the most from the pandemic’s impact on the KSA:

Logistics Services

Food and Beverage

Trading (including online retail)

Manufacturing

Proximity to main warehousing hubs/main suppliers

Accessibility/Suitable accessibility(industry specific)

Likeability to “Last Mile Delivery”(proximity to main residential hubs, etc.)

Storage capacity (greater height, enforced floors)

Advanced internet/data infrastructure

Build to Suit adaptability

Controlled areas and physical security

C19 Impact Outlook Opportunities

7 %

41 %

22 %

30 %

We see the proximity to warehousing hubs and main suppliers as well as industry specific accessibility as areas of focus moving forward.

We see the trading sectors (including online retail), logistics services and F&B expanding their current market share as a result of the pandemic.

SURVEYRESULTS



% o

f tot

al re

spon

dent

s%

of t

otal

resp

onde

nts

17 %

25 %

13 % 13 %10 % 10 % 11 %

13Q1 2020 | KSA: W



Fuelled by a rapidly changing economy, we are witnessing substantial movements across the warehousing industry to cope with evolving demand drivers.

Significant financial impact is expected while business operators continue to evaluate strategies to cope with the current realities of the COVID-19 impact and understand the potential of a “new normal” as the situation stabilizes.

We foresee an industry shift towards leveraging technology to increase efficiency within the warehousing sector, engaging with suppliers, managing inventory, and assessing the impact to production.

Managing demand scenarios and tracking impact on logistics and storage capacities will be key areas to monitor in the mid-term.

Outlook

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Colliers International | Kingdom of Saudi Arabia.

Al Faisalah TowerRiyadh | Kingdom of Saudi ArabiaMain: +966 11 273 7775

The Headquarters Business ParkJeddah | Kingdom of Saudi ArabiaMain: +966 12 610 5900

Ian AlbertChief Executive OfficerMiddle East & North AfricaMain: +971 54 453 7400Email: [email protected]

Imad DamrahManaging DirectorSaudi ArabiaMain: +966 12 610 5900Mobile: +966 50 417 2178Email: [email protected]

Fouad Abou RafehDirectorSaudi ArabiaMain: +966 12 610 5900Mobile: +966 55 035 9970Email: [email protected]

About Colliers International:Colliers International is a global leader in commercial real estate services, with over 18,000 professionals operating in 68 countries. Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognised commercial real estate firm in the world. In MENA, Colliers International has provided leading advisory services through its regional offices since 1996.

Disclaimer

The information contained in this report has been obtained from sources deemed reliable. Any information on projects, financial or otherwise, are intended only to illustrate particular points of argument and do not constitute forecast of actual performance. While every reasonable effort has been made to ensure the accuracy of the information, we provide no warranty or guarantee as to the accuracy or completeness of the information in this report and Colliers International assumes no liability whatsoever in relation to the forecast, figures or conclusions contained herein. Any statements or opinions must not be treated as investment or valuation advice and must not be relied on for investment or any other purposes. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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