Industrial market boost as rental demand surges
THE amount of industrial property available for rental has fallen for six months in a row for the first time in five years, as demand outstrips supply.
Research from Savills has found that vacancy rates fell during the second and third quarters this year.
That is the first time that vacancies have declined for two consecutive quarters for since 2008.
Cumulative take-up in the first three quarters has been about 185,000sqm – almost equal to the 189,000sqm taken up in all of last year.
In a further sign of stabilisation in the market, sales accounted for 46pc of all transactions during the third quarter, up from 41pc between April and June and more than double the 20pc rate in Q1.
Despite the growth, the stabilisation is still overwhelmingly focused on Dublin, with 80pc of transactions taking place in the capital.
Savills' director of industrial Gavin Butler sounded a cautionary note despite the overall positive figures.
"Despite another strong quarter of take-up, there remains a general oversupply of industrial space in the Dublin area.
"Consequently, rental and capital values remain subdued. However, we predict a modest uptick in values next year for good quality modern stock over 1,000sqm as the availability of this space continues to contract.
"There continues to be an overhang of units below that size, and this segment of the market is likely to remain challenged, though making it attractive to cash buyers," he said.
Savills said there is "superb" value in the industrial market, with prices now well below how much it would cost to build a new property from scratch.
Competitive bidding is resulting in higher prices being achieved in certain cases.
"When the extension of the capital gains tax waiver until the end of 2014 is taken into account, the climate is even better for buyers," Mr Butler added.
Some of the major investments so far have included the sale of the 9,000sqm former McCormick MacNaughton facility at Greenogue Business Park and the former Manvik facility on the Lower Ballymount Road.
Values are still way below what is needed to promote speculation.
They would need to double before it would be remotely worthwhile for speculative investment.
"Consequently, vacancy rates are likely to decline further, albeit moderately, over the coming months and there is likely to be modest rental growth for prime space in prime locations," said Mr Butler.
Savills is forecasting take-up for 2013 to be in the region of 225,000-250,000sqm, which will be the highest level of take-up recorded since the property downturn.
Overall, prime rents are in the region of €45-€55 per sqm with capital values ranging from €450-€600 per sqm, Savills claimed.