The CEO of Dalma Capital says that COVID-19 is changing consumer behaviour, driving demand, and solidifying its portfolio
While certain businesses and investors in the UAE and around the GCC region are coping with the gloomy sentiment of a bearish global market weathered down by the coronavirus outbreak (COVID-19), there are other investors and funds that are making the most of the opportunities arising from the changing consumer behaviour.
Dubai-based investment firm Manrre Logistics Fund – which is managed by investment capital firm Dalma Capital and focuses on institutional-grade logistics and industrial real estate in locations including JAFZA, Dubai Investments Park, and Dubai South – is expanding options for qualified investors after placing its shares into Nasdaq Dubai’s Central Securities Depository (CSD).
In an exclusive conversation with sister title Construction Week, the chief executive officer of Dalma Capital, Zachary Cefaratti, says: “We’re seeing great opportunities in the market right now. This is a time to grow our portfolio. The fundamentals underlying our portfolio are solidified, if anything, by the current COVID-19 situation.”
The firm’s long-term view is that the market share of e-commerce sales will continue to grow as a proportion of overall retail spending in the UAE and across the GCC. This will result in a catching-up effect compared to other markets where the e-commerce penetration is about three to four times higher than it is in the UAE.
Cefaratti adds: “The catching-up effect will also be accelerated because of the behaviour changes and consumer spending patterns being catalysed by the COVID-19 situation.
“It just takes one visit to the Dubai Mall or the Mall of the Emirates (MoE) right now to increase your conviction in what we’re doing. People still need to shop and still need to buy, but if they’re concerned about COVID-19, their impetus to make that purchase online is far greater.
“This creates a habit – so when the COVID-19 scare passes and consumer behaviour normalises – the behaviour shift to shop online would already have been created. Once people start shopping online, they keep shopping online."
From a short-term perspective, the Manrre Logistics Fund focuses on the downstream market for logistics and warehouse real estate facilities, which in the UAE, are primarily distribution and last-mile delivery.
“The demand for high-quality logistics and warehouse real estate will grow on par with the growth in e-commerce. Every $1bn of e-commerce sales requires 116,130m2 to 139,355m2 of logistics real estate,” he adds.
The firm has witnessed growth in e-commerce sales at $6bn to $8bn per year at the top line, which is leading to demand for 8 million to 10 million square feet of new industrial-grade logistics and warehouse real estate per year.
Cefaratti says: “Approximately half of that industrial-grade logistics and warehouse property supply is coming from Dubai alone, as the emirate continues to solidify its position as the region’s logistics hub.
“All of these factors, including COVID-19, are only increasing the opportunity in the market, and driving us to want to grow our portfolio more aggressively.”
The Manrre Logistics Fund, managed by Dalma Capital, is not relying merely on the e-commerce sector.
Cefaratti explains: “The e-commerce sector is just where we see the strongest growth for industrial-grade logistics and warehouse real estate. We, obviously, have clients and tenants that delve in other sectors, as well. Now, those clients and tenants, who are also driving demand, are helping us benefit from a buyer-friendly market.”
The Dubai real estate market has been dealing with a supply-demand imbalance due to the oversupply of real estate and a strong pipeline of properties.
However, the fund has not been affected by this due to its concentration on high-quality assets.
“While there is certainly an existing supply of low- and medium-quality warehouses, the supply of high-quality industrial grade assets is limited. We’re only involved in high-quality assets, and therefore, within the high-quality industrial-grade logistics and warehouse real estate segment, the supply and demand is more balanced.”
The firm has also benefitted from demand-driven investments.
“We make all our investment decisions based on what our tenants want; what our customers want. This means that when we acquire logistics and warehouse real estate, we’re putting ourselves in a position to supply to the existing demand. When we acquire a warehouse, we already know who the tenant or the customer is going to be,” Cefaratti adds.
“We’re not interested in building or constructing before we are aware of whom we are building for. We don’t invest in assets where we don’t have visibility on how those assets are going to perform.”
The fund has focused on the growth in demand in the right opportunities. It has showcased its ability to invest at least $50m to $80m in the near future, and up to $150m through the next year, to acquire performing high-quality assets.
“This is because everything we’re doing is driven by the demand of the tenants, and because the type of assets that we acquire are high-quality industrial grade logistics and warehouse real estate.”
“This is why our portfolio has been improving in a market where others have been struggling to maintain the flow of occupancy,” Cefaratti concludes.