Saturday 21 April 2018

Cork v Dub: Ireland could be seeing a new 'hot spot' for data centres

EPark is being developed by John Cleary Developments (JCD) and has planning permission for 300,000 sq ft of data centre space
EPark is being developed by John Cleary Developments (JCD) and has planning permission for 300,000 sq ft of data centre space

Donal Buckley

Cork's industrial property market will see major new development projects get underway in the near future as the market benefits from new high-speed cable links that are helping to attract data-centre investment.

In addition, a deal has been done on a site for a new 4,650 sq m (50,000 sq ft) state-of-the-art industrial building for an international company.

The move could help to break the logjam in the market that has seen a shortage of large, prime industrial space but a lack of new development. While more than 167,000 sq m (1.8m sq ft) of industrial space is currently available, much of this is either of poor quality or too small to accommodate a major project.

Consequently, rents for prime existing industrial units have recovered somewhat from around €5 per sq ft in 2015 to around €6.50 per sq ft for well-located prime units, according to Sean Healy of the Cushman & Wakefield's Cork office.

Rents for lower quality properties are around €4 to €4.50 per sq ft.

But rents of around €8.50 per sq ft could be achieved for new builds to suit developments in Cork, says Garrett McClean, industrial director CBRE, which is about to open its first Cork office in the coming months.

"Cork will be the next hot spot for data centres," says Mr McClean, who is currently in detailed discussions with both prospective clients and end-users for the data centre campus to be known as EPark, which will be developed by John Cleary Developments (JCD).

The developer of a number of new office and retail projects in the city, JCD has begun clearance work on the 32.5 acre former Mitsui Denman site in Little Island, near the Dublin Road to the east of the city. It was purchased for about €100,000 an acre, a sharp discount to boom-time prices when sites in the Wallingstown area of Little Island had been making between €850,000 and €1m an acre.

As well as planning permission for 28,000 sq m (300,000 sq ft) of data-centre space, JCD has also secured 60 megawatts of power from the grid and full planning permission for a sub-station to supply this power.

"This power supply, which is vital for the energy-hungry data centres, currently gives Cork a competitive advantage over Dublin when it comes to attracting data centres, as the capital will be power-constrained the first quarter of 2019," McClean says.

Cork's competitive advantage will be further enhanced by the latest international underwater cable links to the US, UK and the continent.

Cork has been the site for a spur off the €200m Hibernia Express Transatlantic Cable, which is being laid between Canada and Europe, and which will open up vital high-capacity, or Tier 1, fibre connectivity from Cork direct to the US and Britain. So in other words, Cork-based data centres will not have to transmit through Dublin.

In addition, work is expected to start this summer on the Irish French Sea Cable (IFSC), connecting Ringaskiddy port in Cork Harbour to Lannion in France and provide the first direct link between Ireland and the continent.

Hibernia's new cable will transfer data five milliseconds faster than current transatlantic cables - a fraction of time that can mean millions of euro to investors and share traders.

It is hoped the cables could help deliver hundreds of high-tech jobs for the southern region in Ireland's growing cloud computing and data sectors.

McClean says that the first JCD data centre will be built to shell and core stage within 12 months.

This upsurge in activity contrasts with the situation at the end last year, when only 650 sq m (7,000 sq ft) of industrial stock was being built, and all of that was already assigned to an occupier.

But a lack of quality stock is also reflected in the low amount of space taken up in 2016, when take-up in Cork fell to 21,400 sq m (230,000 sq ft), or less than half the 49,050 sq m (528,000 sq ft) taken in 2015.

While Cushman & Wakefield's latest industrial report shows that Cork's vacancy rate increased from 11.5pc to 13pc by the end of 2016, Sean Healy says that much of the available stock is in smaller, poor-quality buildings.

Lisney's Margaret Kelleher says the limited supply of modern industrial buildings of over 1,000 sq m (10,800 sq ft), with dock level loading facilities, remained a feature of the market.

"If someone came looking for 30,000 sq ft of good quality buildings in the morning, it would not be available and there have been a few enquiries from prospective occupiers in recent months," Healy adds.

He also reports strong enquiries for both leaseholds and sale properties.

"Further upward pressure is expected in 2017, driven by tight supply in key locations and growing occupier demand," he says.

Consequently, both he and Kelleher expect the vacancy rates to fall in Cork.

"As the vacancy rate falls and tenants compete for the limited stock of modern, well-located units, there will be upward pressure on rentals," says Kelleher.

She says that capital values increased during 2016 and prime values for larger buildings ended the year between €540 and €590 per sq m (€50-€55 per sq ft). There were also significant increases for smaller units of less than 250 sq m (2,700 sq ft).

"Capital values will increase as supply falls and more bank funding becomes available. This will be particularly the case for owner-occupiers," she says.

Kelleher also expects new construction activity on some of the available sites in existing business park developments, including Harbour Point Business Park and Anchor Business Park. As the supply of modern buildings remains tight, owner-occupier interest in development sites is likely to increase.

She also flags greater interest from warehousing and logistics companies in the Ringaskiddy area as a result of the proposed major upgrade of the N28 road and the planned relocation of the Port of Cork to Ringaskiddy.

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