Demand for manufacturing, logistics and warehousing property in Dublin continues to rise, underpinned by increased trading volumes at Dublin Port, according to Savills.
Total throughput at Dublin Port rose by 2.9% in the first half of the year, leaving 2017 on track to be the strongest year ever for port traffic.
John McCartney, Director of Research at Savills Ireland commented; “Supported by the fastest jobs growth in almost a decade personal expenditure on consumer goods is rising by 3.9% per annum. This impact of this is being felt throughout the supply chain – from increased goods movements at Dublin Port right through to increased demand for warehousing, logistics and distribution property.”
Transactions
Despite the restricted availability of good quality modern units in prime locations, gross transactions of industrial space totalled 68,500 m² in Q2 2017 – up 29% on the same period last year. There were three particularly large deals in the quarter - the sale of the former United Drug and Cuisine de France facilities on the Belgard Road, Tallaght (11,362 and 9,183 m² respectively) and the pre-letting of a new design and build distribution centre at Dublin Airport Logistics Park to Holland & Barrett (6,180 m²).
Together, these accounted for 39% of total take-up for the quarter. Overall, approximately 123,500 m² of industrial space was transacted in the first half of the year, an increase of 4% on the same period in 2016.
Latest MSCI data show that estimated rental values (ERVs) for a sample of prime industrial properties rose by 9.8% in the year to June. Headline rents for prime industrial property in Dublin currently stand at approximately €100 per m² per annum.
Gavin Butler, Director of Industrial at Savills Ireland commented; "Market conditions remain tight with the availability of high quality modern units in prime locations still limited. Reflecting this, and with prime ERVs still 40% off their previous peak, we expect continued rental growth through the remainder of 2017 and 2018.”
Speculative Development
At 5.25% - 5.50%, prime industrial yields have remained steady in Q2. At this capitalisation rate, build-to-rent development has become viable and we have therefore seen a return to speculative construction.
The first of this product is now being offered to the market at Dublin Airport Logistics Park on the M2, just off Junction 5 on the M50. Should strong covenants be secured we could see some of this speculative development being sold on to investors who are seeking to balance their portfolios with industrial assets and to benefit from the upside demand for logistics space arising due to the growth of e-commerce. While the spread between industrial and office yields has become more challenging, this scenario perhaps allows the possibility for a further marginal hardening of prime industrial yields.
Outlook
The sustained pick-up in domestic demand, and expectations of future strong growth, should ensure that the appetite for Dublin industrial space remains firm. This is prompting further speculative development with a number of developers considering speculative construction or seeking planning permission for industrial development.
