Best Q1 since 2008 moves focus to industrial spaces
A number of developers availed of the capital gains tax incentives to snap up industrial properties with attractive development potential and this trend was reflected in how industrial take up during the first quarter of this year was at its highest quarterly highest level since 2008.
The most valuable deals included properties which are generating investment income as these allow developers financial latitude to wait for rental demand to improve and for rents to reach levels which make it feasible to build on the undeveloped parts of sites.
Indeed industrial agents are the latest to signal a possible shortage of supply of prime space, following on the foot steps of their colleagues in the office, residential and hotel sectors who have already beaten their drums about the need for new development.
While rents are increasing following a strong increase in take-up in quarter one, Nigel Healy, director of Industrial at JLL, expresses concern that "economic rents are still some way off making development feasible.
At some €6.50 per sq ft, rents would need to increase by approximately 35-40pc before they start to justify this activity," he says.
"There is some evidence that developers are starting to look into the potential for industrial development, with some pre-planning activity.
However, with nothing currently on-site, and a minimum build-time of 12 months, it is not likely that we will see anything significant brought new to the market in 2015.
Another barrier is the lack of bank funding available for development projects.
Although lending has resumed for commercial investments, there is still a gap for construction and development finance," he adds.
Gavin Butler of Savills does not expect any new supply to come to the market until 2017 and in the meantime demand for industrial space will continue to build on the back of a recovery in the consumer economy, as indicated by the strong growth in imports. "With capital values recovering from a very low base, and with interest rates guaranteed to remain low … there will continue to be strong sales activity in 2015. Capital and rental growth is likely to continue in 2015 and 2016," he adds.
Garrett McClean of CBRE is even more upbeat on the outlook and says that rents could rise to around €70 per sq m (€7 per sq ft.) later this year. He also expects that an international specialist logistics developer who purchased the 33.45 acres at Baldonnel Business Park, Dublin 22, for which CBRE had been guiding €3.25 million, will seek planning permission for a 400,000 sq ft facility on the site.
Estimates vary on the amount of space taken in the first quarter of the year. CBRE and William Harvey say that between 926,000 and 990,000 sq ft was either bought or leased in the Dublin market. Gavin Butler of Savills says it topped 1.18 million sq ft while JLL's Hannah Dwyer estimates take-up at 1.23 million sq.ft. across 50 deals.
"This is a 2pc increase on take-up in the last quarter of 2014 and is significantly higher than the 270,162 sq.ft of take-up recorded in the same quarter last year. There were six transactions greater than 60,000 sq.ft. of which three were greater than 100,000 sq.ft," Ms Dwyer says.
However the shortage of prime space is reflected in the fact that prime accounted for only 8pc of the take-up with secondary space accounting for 60pc. While prime rents are trending upwards with evidence of deals achieving €6.50 per sq.ft, secondary rents remain at €4.50 per sq ft, according to JLL.
"With tightening supply and relatively static capital values, it is of no surprise that sales continue to dominate over lettings. This being the case, capital values will rise noticeably, as have rents," says Healy.
The top sale so far this year appears to have been the mixed use Butterly Business Park in Artane, Dublin 5, for which Savills achieved more than €7m. The park's total floor space of 153,408 sq. ft. includes a 30,000 sq. ft. industrial facility.
Nevertheless as the eight acre park already includes a number of retail and office units and also has planning permission for a mixed development with 178 dwellings, it is expected that the developer who purchased it is likely to include little or no industrial space.
If that mixed development deal is excluded, the most valuable industrial deal was the Alcatel Lucent property at Blanchardstown Business & Technology Park, Dublin 15, purchased by an Irish investment firm for a sum believed to be around €6m.
A Lisney brochure shows it as generating rental income of around €600,000 from part of the office space in the most modern of its varied buildings. Including warehouses. Together the buildings had a total floor area of 307,740 sq ft. and its 14.75 acre site also has development prospects.
Also sold on the northside was the former Diamond Innovations facility in Clonshaugh, a 198,497 sq. ft. premises on a spacious 24.04 acres for which Philip Harvey had been quoting €4.95m.
Also on the northside, the 157,100 sq ft former Amcor facility on seven acres at Jamestown Road, Finglas, Dublin 11, is believed to have sold through Harveys for below its €3.95 million asking price.
Another Finglas development site, the 68.58 acre property known as Abbotstown Business Park, Cappagh Road, Finglas, Dublin 11, was sold through Kelly Walsh for around €3.5 million.
Near Drogheda, Co. Louth, the former 80,000 sq ft IFF facility on Donore Road was bought by a local recycling company for around €1.3m which was slightly below its €1.5m asking price.
Conor Steen of Savills pointed out that the 1980's building was well maintained and had the add potential of sitting on a 12.85 acre site.
Among the larger deals expected to be closed this quarter is the 11.17 acre Tallaght Business Park, including the former 149,457 sq ft Fruitfield jam manufacturing plant.
Joint agents Harveys and CBRE had been asking for €4.25m.