Design and build

The logistics boom has resulted in unprecedented demand for warehouse construction projects. However, as building costs continue to escalate, could demand finally be slowing down?

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By  Robeel Haq Published  July 30, 2006

|~|warehouse_construction2.jpg|~||~|The metaphoric rise of the Middle East’s logistics industry has attracted the attention of multi-million dollar companies throughout the world, desperate to enter the region with ambitious distribution centres. As a result, the number of warehouses being constructed in the Middle East is booming and demand is expected to rise further, thanks to projects such as Dubai Logistics City and Saudi Arabia’s Economic City. The situation has dramatically boosted the profit margins of construction companies throughout the region, particularly in Dubai, where the majority of warehousing facilities are currently being located. Riad Bsaibes, the chief operating officer at Amana Contracting and Steel Buildings, believes the location of the Middle East, coupled with the incredible economic growth of nearby India and China, has spurred the demand for distribution centres. “The unprecedented growth of the logistics industry is helping to fuel the construction boom,” he reasons. “It has become difficult to estimate the total number of warehousing facilities currently being developed in the region, but we are talking millions of square metres.” Since being established in September 1993, Amana Contracting and Steel Buildings has grown into one of the region’s leaders in the construction of industrial and commercial facilities. In total, the company has constructed over 1500 buildings across the Middle East, with clients including logistics heavyweights Gulf Warehousing Company, Transworld and PWC Logistics. The company is also constructing the logistics facilities for Airbus at Dubai Airport Free Zone, in addition to projects with General Motors, Hitachi, Info-fort, Hyundai-Mobis and Al Futtaim. “All of them are challenging in the respect that they require the facilities to be designed in order to ensure the fast movement of goods into and out of the warehouses,” says Bsaibes. “In the logistics sector, the ability of the contractor to deliver a quality product is very important to the success of the client. It affects their time to market, not to mention their ability to meet pre-agreed logistics contracts.” Warehouses are traditionally located in industrial and commercial areas, where the cost of land is lower than residential areas, and companies can benefit from great access to a multi-modal transport infrastructure. Dubai is currently the most popular destination for warehouses in the region, especially with ambitious free zones such as Jafza and Dubai Logistics City, where companies also benefit from various business incentives, including custom duty exemption. However, other countries in the Middle East are planning to increase their logistics activities by improving transport infrastructure and creating distribution hubs. The status of Saudi Arabia, Bahrain, Qatar and Oman is expected to grow within the logistics industry over the next decade. As such, the number of warehouses being constructed in these countries is mammoth and the average time for construction, according to Bsaibes, is only 8-12 months. However, the duration will inevitably depend on the level of cooperation between the client, consultant and contractor. “The better the communication within the group, the less time it takes to construct a warehouse,” says Bsaibes. “We have been able to design and build warehousing facilities within 90 days, but such cases require an extreme level of cooperation and trust between the client and contractor.” The warehouse specifications, such as size of facility and products being stored, will also affect the construction time. The main considerations normally centre on the cost and size of land, the access to good transportation infrastructure and the proximity of the warehouse to clients. “If a company is storing general building material, such as steel and wood, its requirements will be completely different to a company storing fresh food or medical devices,” says Bsaibes. “The differences are not limited to the structural aspects of the building, but also the electrical, mechanical and safety aspects too. This highlights the importance of communication between client and contractor. Detailed information should be supplied from the early stages.” Customer involvement in the design-and-build of warehousing facilities is essential for various different reasons. The type of products being stored, for example, has a direct impact on the design, construction, timescale and cost of the facility. The contractor also needs to understand the differences between constructing a warehouse in the Middle East compared to the rest of the world. “Warehouses in this region are designed and constructed differently,” agrees Bsaibes. “For example, the low precipitation levels in countries such as Saudi Arabia will reduce the importance of waterproofing, compared to somewhere like Amsterdam. However, the high temperature we experience in the Middle East makes factors such as thermal insulation and air conditioning more important.” The cost of construction has grown substantially over the past year, primarily because of increases in the price of building materials. For instance, the cost of steel has risen by over 50% since the beginning of the year, whilst the cost of copper, which goes into the electrical cables used in buildings, has increased even more. “Obviously, the higher cost of construction will reduce the return on investment for the warehouse facility. However, if the client is increasing his cost to the clients, then the return on investment remains the same, which keeps the viability of the facility intact. In the long run, I doubt the rising costs will have a major impact on warehouse construction in the region. On the contrary, I think demand will continue to rise in the foreseeable future,” says Bsaibes. ||**||

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