Business Commercial Property

Friday 29 August 2014

€590m in industrial construction is under way despite vacant properties

Donal Buckley

Published 23/01/2014 | 02:30

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Allsop auctioneer Gary Murphy during an Allsop Space commercial auction last October. Photo: Frank Mc Grath

MORE than €590m worth of building work is currently in train on 32 industrial and warehousing projects in Dublin and around the country.

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That is well below the level of investment attained last year when 167 projects valued at €1.2bn were completed.

However, such activity seems surprising considering the high vacancy levels for these types of property and the fact that some of them are selling for well below construction cost.

In Dublin, as much as 1.22 million sqm of industrial space is vacant and the vacancy rate ranges from 15pc on Dublin's southside to 32pc on the north side.

A lot of the current activity is being driven by the food sector where specialist new premises are required to cater for new premises.

Based on information provided by Construction Information Services (CIS), the research company which monitors construction activity, one of the most valuable of the projects currently under construction is the €150m dairy processing project which Glanbia Estates is developing at a 51-acre site at the IDA Science & Technology Park in Gorteens, Co Kilkenny, where the building will extend to 24,597sqm.

Construction work is due for completion in August 2015.

Another is the €47m whiskey maturation storage warehouse project which Irish Distillers is undertaking in Dungourney, in east Cork.

LOGISTICS

In Dublin, Pallas Foods is building a €43m warehousing and logistics development on a 40-acre site near Dublin Airport. As many as 200 people are estimated to be working on the construction of the two warehouses, offices and service unit which will have a combined floor area of 33,000sqm, or the equivalent of almost five football pitches. When operational about 100 people are expected to be employed there.

The Taoiseach's constituency is the location for another large project, as US pharmaceutical company Allergan expands its Westport facility for manufacturing medical devices and pharmaceutical products.

The construction work will include a 3,456sqm office block and an 8,705sqm production hall and is expected to be completed 12 months from now. It is expected to accommodate an extra 200 employees at the plant which currently employs 800.

CIS research shows that more developments are in the pipeline with 350 planning applications submitted in the last year and 259 planning applications approved in the same period.

While many of these applications may be quite small or may never come to fruition, nevertheless they show that entrepeneurs are planning to take risks by investing in new building work either to expand existing operations or develop new ones.

Such activity is in addition to the take-up of existing vacant industrial space. Last year saw as much as 300,000sqm of industrial space change hands in terms of sales and lettings.

"This reflects a 54pc increase on 2012 and a staggering 210pc increase on the cycle low of 2009," according to Lisney director Cathal Daughton.

A similar, if not higher level of sales and letting activity of existing space is expected this year, according to Garrett McClean of CBRE.

"With demand continuing to outstrip supply for well-located modern facilities we expect to see an increase in industrial rents emerging in the capital for the first time in six years," he adds and estimates that rents for prime premises will creep up from around €60 per sqm at present to more than €67 per sqm by the end of this year.

Mr McClean foresees a shortage of prime premises along some of the prime arterial routes out of Dublin, but rules out any speculative development of new industrial premises this year.

Mr Daughton reckons that for such new premises, developers would need to be able to sell them for around €90 to €100 per sq ft (€8.30 per sqm to €9.3 per sqm) in order to justify such speculative activity as construction costs for prime industrial space could amount to as much as €70 to €80 per sq ft.

Consequently it is not surprising to find that existing premises are being snapped up at prices below construction costs. For instance, an eight-acre property with a 30,000 sq ft building in Greenogue, in south west Dublin, formerly occupied by South Midland Construction, was sold at the Allsop Space auction last month for €1.3m. That price was considered a bargain as it works out at €43.33 per sq ft for the building, or €162,500 per acre for the site.

Last March, Allsop Space sold a Dublin northside unit for an even lower price of around €15 per sq ft. The property – Unit 9, Boeing Avenue, Airways Industrial Estate, Santry, Dublin 9 – failed to sell at auction but sold after for in the region of its €895,000 reserve price. The warehouse, office and showroom facility had a floor area of 5,334.9sqm.

With some old industrial buildings in Dublin now selling for around €30 per sq ft and some country buildings selling for less than €7 per sq ft, it seems surprising that businesses will invest such large sums and effort in developing new premises.

Mr McClean points out that they feel compelled to do this in order to equip them with the facilities they require. This is especially true of the data centres and food processing facilities.

CIS research shows that five buildings suitable for data centres are currently under construction with a combined value of €63.2m – all of them in Dublin.

Irish Independent

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