Weak sterling 'positive' for industrial sector
Notwithstanding the dramatic slowdown in the take-up of industrial property in the third quarter of 2016 compared to the equivalent period last year, Savills are maintaining that the outlook for the sector remains positive.
While a number of commentators have attributed the year-on-year decline of approximately 28pc to the post-Brexit decline in the value of Sterling, Savills Director of Research John McCartney believes there is scope for a pick-up in the performance of industrial property.
Gross take-up of industrial property for the third quarter came in at just under 102,000 sq m. McCartney said: "In the longer term, we agree that weak sterling is likely to drag on exports to the UK, and this may impact negatively on the demand for manufacturing and logistics space. However the same logic dictates that weak Sterling should have a positive effect on imports from Britain. Given that Ireland's merchandise imports from the UK exceed our exports to that market, the long-run impact of the currency shift could therefore be a net positive for logistics demand."
Savills Director of Industrial Gavin Butler, for his part, cautioned against "reading too much" into the slowdown in industrial property take-up.
He said: "The Q3 2016 take-up figure is being compared with an exceptional Q3 2015 when 141,000 sq m of industrial space was let or sold - a record for the Dublin market. In fact, although it is almost 40,000 sq m down on the third quarter of last year, this quarter's take-up remains among the strongest in the current economic cycle and is 62pc higher than the long run average." The consensus in the real estate industry is that there is a scarcity of good quality units in the greater Dublin area. Obsolescence is seen as an issue for a major proportion of the remaining available stock.
And while most occupiers would prefer to buy rather than rent, a combination of the yield profile of existing units and the fact that properties bought between 2011 and 2014 must be held for seven years to avail of the Capital Gains Tax (CGT) holiday introduced in Budget 2012, has severely constrained the number of units coming up for sale. The supply shortage has been compounded by the fact that construction of new industrial property has only just resumed. Rohan Holdings development at Dublin Airport Logistics Park and Green Reit's development at Horizon Logistics Park are the only projects underway.
With capital values rising however, further speculative development will be a key feature of the market in 2017. However, with prime values still below replacement costs, the potential for capital and rental growth in a tightening market remains in place.