Friday 14 December 2018

Grade A industrial & logistics in Dublin are in short supply

An artist’s impression of Mountpark’s logistics scheme at Baldonnell Business Park, which is currently under construction
An artist’s impression of Mountpark’s logistics scheme at Baldonnell Business Park, which is currently under construction

James Smith

Demand for industrial and logistics space is strong with close to 20 large box requirements (in excess of 2,000 sq m) in the Dublin market currently. Meeting that demand is proving to be difficult however, given the acute lack of availability of Grade A buildings at present.

Any existing buildings that may be Grade A, or even Grade B, have largely remained idle on the market due to fundamental issues with the building making them incompatible for use by logistics companies. It is this lack of supply that has largely dictated a rise in rents for both new buildings and second-hand Grade A buildings. Rents here currently stand in the region of €9.50 per sq ft and €8 per sq ft respectively.

On a more positive note, developers within the north west Dublin market, such as Rohan Holdings and Green REIT, are showing increased confidence in the sector. Both developers are pro-actively obtaining planning permissions for buildings, typically in the 2,700 sq m to 4,600 sq m size bracket, and have commenced a number of speculative builds at Dublin Airport Logistics Park, North City Business Park and Horizon Logistics Park.

Speculative development should be further enhanced with new schemes getting underway at M2 Airlink just off the M2, which is owned by the Callery Family, and IPUT's Vantage Business Park, also just off the M2.

While there is anecdotal evidence to suggest that the northern region of Dublin is the preferred location for logistics operators given the degree to which it has been the subject of industrial developers' attention, strategic decisions have been made to commence construction on two buildings in excess of 7,500 sq m in south west Dublin also.

One of these buildings is situated at Baldonnell Business Park and is being developed by Mountpark, while the other building is being delivered by Exeter Property Group at Greenogue Business Park.

This speculative development should place these developers at a competitive advantage over rival north Dublin schemes.

Perceptions within the market of higher demand within the north Dublin region may well be strongly influenced by the basic demand and supply dynamics of land.

There are in excess of 1,000 acres of industrial land available in north Dublin, compared to an approximate 500 acres of available industrial zoned land in south-west Dublin.

With the progression of two large buildings at Baldonnell at Greenogue in south west Dublin, there is potentially a gap in the north-west Dublin market as there are no speculative planning permissions or buildings under construction for requirements in the 7,500 sq m plus size bracket. What makes this more surprising is that there are developers with schemes in north west Dublin who are actively engaged in a number of discussions with occupiers seeking in excess of 7,500 sq m.

There appears to have been a lag in developers placing themselves at a competitive advantage over rival schemes where timing could be a critical factor in the decision-making process for a specific occupier.

Market intelligence suggests that a number of occupiers who have recently taken, or are due to take large volumes of space in the last number of months, are now indicating that they will be will be seeking further space.

Included in this mix of occupiers are a number of third-party logistics operators such as DB Schenker and Kuehne & Nagel who have either taken occupation or committed to taking large warehouse spaces at Northwest Business Park and Green REIT's Horizon Logistics Park. There are also a number of land requirements from logistics operators who prefer to own their own buildings for internal accounting purposes and maintaining control over future expansion initiatives.

In other cases, the demand for small plots of land in the five acre to 10-acre size bracket is driven by having control over their own specification and construction costs, in addition to not having to factor in developers' profit into their rental/holding costs.

This has the added attraction that in a period of 10 to 12 years of paying rent, an occupier could have purchased the same building outright.

But while this is often an ideal scenario, the reality is somewhat different, and there are limited opportunities to purchase individual sites as most large land holdings are owned by developers who don't have an appetite to sell serviced sites as there is little to no profit in doing so.

There are a few exceptions to this, however. Banks may still hold sites which they have yet to offloaded, while developers such as Park Developments, which has various sites for sale at present, have been mainly focussing their attention on office schemes and the private rented and residential development sectors.

On a finishing note, it is worth highlighting the positivity surrounding the Brexit issue.

I believe the UK's decision to leave the EU may well present opportunities for increased warehouse take-up across all spectrums of the occupier market here, including E-Commerce and Data Centre occupiers.

E-commerce retailers such as Amazon who don't yet have a distribution presence in Ireland are likely to be forced to establish an Irish distribution hub.

This is likely to come about as a result of the increasingly confusing, and at times heated debate between the UK and European camps regarding the future relationship that will exist between them post-Brexit.

James Smith is a surveyor with Cushman & Wakefield's Industrial & Logistics team

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