Rising costs slow factory rentals

Karachi's industrial property market is showing signs of a slowdown, with brokers across the city's major industrial estates reporting weakening demand for factory rentals from SME manufacturers grappling with rising costs.

While inquiries for industrial sheds and small factory units continue, fewer prospective tenants are willing to finalise rental agreements after calculating the cost of running their businesses. The combination of expensive electricity, higher rents, increased labour and transport costs, and subdued demand has forced many entrepreneurs to postpone expansion plans.

Brokers said monthly rents for comparable factory units have risen from around Rs100,000 to nearly Rs400,000 over the past few years, placing additional pressure on small manufacturers.

Muhammad Yaqub, an industrial property dealer in Korangi Industrial Area, said the profile of clients has changed noticeably. "Earlier, businesses looking for industrial space were planning to expand production. Today, most inquiries come from small manufacturers searching for modest rental units because they cannot afford to purchase. Even then, many decide not to proceed after reviewing their monthly operating expenses," he said.

According to him, SMEs are becoming increasingly cautious, preferring to continue operating from existing premises instead of taking on additional financial commitments

Brokers said the rental value of industrial units is now driven primarily by their electricity capacity, with gas availability no longer a significant factor. Akbar Memon, from the main SITE Industrial Area in Shershah, said rental deals have become more difficult despite steady inquiries.

Adil Yusuf said the market is witnessing more relocations than genuine expansion. "Businesses are moving in search of lower rents or better utility arrangements. These are cost-management decisions, not signs of new investment," he said. Clients now prioritise electricity infrastructure and utility costs over location, while many are reducing space requirements or delaying relocation to contain fixed costs.

Many dealers say electricity has become the biggest concern for manufacturers, as heavy machinery requires uninterrupted three-phase power and cannot easily shift to solar. Echoing this, Asghar Ali, who deals in Landhi and Malir properties, said many tenants lose interest after estimating electricity bills. "People assume solar is the solution, but that is not practical for many manufacturing units. Heavy industrial equipment still depends largely on grid electricity, making power costs one of the biggest factors affecting business decisions," he said.

Brokers in other industrial zones report similar trends. Osama Qureshi from the Super Highway industrial corridor said demand has shifted towards warehouses rather than production units. "Businesses involved in logistics and warehousing continue inquiries, but manufacturers are cautious because production costs have risen. Many companies prefer to wait before committing to new factory space," he said.

In New Karachi Industrial Area, financing constraints have further dampened activity. "Even businesses that want to expand struggle with security deposits, machinery relocation costs and higher working capital requirements. SME owners prefer to continue from existing premises rather than taking on additional expenses," Jawed Raza said.

Real estate participants believe the slowdown reflects broader manufacturing challenges rather than weakness in the property market. Industrial real estate performs well only when small manufacturers are confident enough to expand production and invest in additional capacity.

Landlords have become more flexible, offering longer payment terms and modest rent adjustments. However, concessions remain insufficient as businesses continue grappling with high electricity tariffs.

Smaller brokers, who rely on informal networks and online platforms such as OLX, say response rates have dropped sharply. Advertisements that previously generated multiple inquiries now receive little interest. Several brokers said potential tenants are only gathering information on rents and utility costs rather than proceeding with lease agreements.

Some small-scale industrialists expressed concern over what they described as the role of estate brokers in driving up industrial rents. They alleged that brokers often quote higher asking rents to maximise commissions, contributing to a sharp rise in rental values in recent years. According to them, escalating industrial and commercial rents have added to the burden of manufacturers already grappling with high electricity tariffs and other operating costs. Estate brokers, however, maintained that rents are determined through negotiations between landlords and tenants and reflect prevailing market conditions as they have no role in hiking the property value or monthly rents.