Friday 17 August 2018

Dublin logistics property market now third in Europe

K Furry Park, in Santry, north Dublin
K Furry Park, in Santry, north Dublin
5.5 acres in Ballymount
Northwest Business Park
Western Industrial Estate

Donal Buckley

Dublin logistics property is the third most attractive property market in Europe.

That's according to the latest European Fair Value Index, which analyses 123 European office, retail and logistics markets. It found that Dublin logistics property was the third most underpriced property in the first quarter of this year, moving from fifth most underpriced in Q4 2017.

Moscow has the best bargains as its retail and office sectors are ranked the most underpriced, according to the survey compiled by Cushman & Wakefield.

These three markets have the highest medium-term rental growth forecasts, according to the estate agents, and also hold expectations for further yield compression in 2018. The latter suggests future rises in Dublin industrial price values.

"At the end of Q1 2018, prime rents for Dublin logistics reached €91 per sq m, an increase of 3.4pc in the quarter and 12.3pc year on year. Further rental inflation is anticipated for the remainder of the year," says Kate English, economist with Cushman & Wakefield. She forecasts that prime rents could reach €108 per sq m by the end of 2019.

However, agents differ on rental levels for the current year. Nigel Healy, director industrial at JLL, says prime rents remained steady in Q1 at €8.75 per sq ft (€94.18 per sq m).

"Over 2018, prime rents are forecast to grow by 4pc to €9.10 per sq ft (€98.00 per sq m)," he says.

Ms English is slightly more optimistic and forecasts that they could reach €100 per sq m by the end of this year.

But CBRE was even more bullish in its more recent report to the end of April, which says that prime Dublin industrial rents have already breached the €100 per square metre benchmark. Furthermore CBRE's Marie Hunt says "prime headline rents, which are currently in the order of €102.20 per square metre (€9.50 per sq ft), will continue to increase, with a further 7pc uplift anticipated by year-end 2018".

The latest Cushman & Wakefield Fair Value index also suggests that Dublin office values are coming close to being fully priced.

"Core office markets including London, Vienna and Istanbul are all classified as fully priced, having reached their lowest historical yield, with limited yield compression forecast and, in many cases, modest rental growth expectations," Ms English adds.

"This is also evident in the Dublin office market with prime yields having returned to 4pc, a level last attained in 2007. Prime office yields in Dublin are forecast to remain at this level over the course of 2018 and 2019. Dublin offices were classified as fairly priced in the latest index, however sitting at the higher end of this scale, edging towards fully priced."

Meanwhile, Cathal Daughton of Lisney says the strength of Dublin's industrial market is reflected in demand for pre-letting and pre-sales of logistics property and this in turn is reflected in growing numbers of planning applications for industrial buildings as well as speculative development.

"There are some large requirements in the market at present, which may be fulfilled in Q2 as design and build lettings," he says. He also believes that secondary rents will continue to grow and present opportunities for some investors.

In addition he foresees some of those who bought industrial properties between 2012 and 2014 availing of the Government decision to allow them to qualify for capital gains tax exemption if they sell after four years. Such sales "will present opportunities for investors and occupiers as more product is brought to the market", Daughton adds.

Marie Hunt says the rising rents have already resulted in a small number of speculative schemes being developed.

"New development will in time alleviate the supply pressures that have characterised this sector of the market over recent years," she says.

An example of a speculative scheme that has recently been launched to the market is Vantage Business Park fronting onto the N2 at Junction 5 of the M50 in north Dublin.

This new Grade A scheme will offer facilities ranging between 4,265 sq m and 5,485 sq m with extra-large service yards.

Meanwhile, Exeter, Mountpark, Green Reit plc and Rohan Holdings are in the process of delivering speculative buildings.

The latest industrial market reports from JLL, CBRE and Lisney record a 40pc increase in the take-up of industrial accommodation by occupiers in Q1. JLL estimated the total take up at 713,830 sq ft across 54 deals which was a 46pc rise in the number of deals compared to Q1 2017. This was also a 20pc increase in the number of deals compared to last quarter of 2017.

Nigel Healy, JLL's director of industrial, says smaller-sized deals dominated take-up in the most recent quarter, with 61pc under 10,000 sq ft.

Niamh Manning, research analyst with JLL Ireland says that: "Problems currently stalling further development include the high cost of construction and the limited number of developers currently in the market.

"That said, forecast rental growth of 4pc per annum for the next three years will see rents push industrial development towards more financially-viable levels. Combined with the considerable weight of investment capital targeting the sector, this may entice more developers into the market."

One of the largest deals of the last six months was Iput's purchase of a vacant 117,047 sq ft modern warehouse building on a 6.45 acre site in Northwest Business Park in Dublin 15, for around €12.3m in a deal brokered by Knight Frank.

In the same area, William Harvey more recently brokered the sale of 105 Northwest Business Park, an 18,093 sq ft unit on 1.6 acres for "significantly in excess of its asking price €1.95m". The same agent sold 41 Hawthorn Road, Western Industrial Estate, an 18,621 sq ft 'refurbishment opportunity' for €850,000.

Two of the larger lettings in Q1 included the 65,445 sq ft K Furry Park, Santry in north Dublin which Harvey let to Euro Car Parts; and the 41,807 sq ft on 5.5 acres in Ballymount which was let to The Go-Ahead Group Plc.

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