According to Savills latest Ireland industrial property report, take-up of industrial space in Dublin reached a new record level in 2013 and this trend is expected to continue into 2014.
According to Savills latest Ireland industrial property report, take-up of industrial space in Dublin reached a new record level in 2013 and this trend is expected to continue into 2014. The international real estate advisor reports annual take-up at approximately 274,000 sq m in 2013 representing a 45% increase year-on-year. Of this take-up 89,000 sq m was let in Q413, representing the highest quarterly take-up recorded in Dublin over the past five years. Savills notes that a strong growth in the manufacturing sector, combined with a recovery in retail sales, will continue to drive industrial activity in 2014 and forecasts that total take-up will reach approximately 225,000 to 250,000 sq m in Dublin by year end.
Dr John McCartney, head of research at Savills Ireland, says: “There is now a growing sense that we are beginning to see a real turnaround in the Irish economy. The manufacturing component of GDP, which is a critical driver of the demand for industrial space, increased by 2.1% in the year to September. This momentum appears to have continued through the winter period with the manufacturing PMI registering growth for the eighth successive month in January 2014.”
In addition to the improvement in Ireland’s manufacturing performance, Savills research shows that retail sales are now also bouncing back, which will further increase the demand for warehousing space. Dr McCartney adds: “Employment and household incomes are now rising, and this is feeding through to the tills with a 3% uplift in retail turnover in the 12 months to December. In turn, this is creating additional demand for logistics and distribution space.”
Despite increased demand, however, Savills observes that capital values for industrial space remain at very low levels. According to Gavin Butler, director of industrial at Savills Ireland, this has led to an increase in the number of buildings being purchased outright rather than let. Gavin Butler comments: “With market prices currently at around half the cost of developing buildings, the option to buy an industrial property in Dublin rather than rent has never been more appealing. As a result, sales increased from 20% of market transactions in 2012 to 47% last year.”
The firm suggests that low capital values are also limiting new developments of industrial buildings, and believes this will result in the market continuing to tighten in 2014. Prime industrial yields currently stand at 8.75%.
Mr Butler says: “With demand increasing and no new supply in the pipeline, we expect vacancy rates to continue falling in the medium term. In particular we are likely to see a shortage of good quality accommodation over 1,000 sq m in prime locations which should lead to an increase in value for this type of space as the year progresses.”