Monday 19 March 2018

Industrial market shows improvement in regions

The Kerry Group building at Island Corporate Park, Little Island, Cork which was sold last December for around €1.1m.
The Kerry Group building at Island Corporate Park, Little Island, Cork which was sold last December for around €1.1m.

Donal Buckley

Prime industrial rents in Galway scored higher growth rates than any other Irish city with a 20pc rise in 2015. This compares to a 16pc rise for prime headline rents in Cork; a 7.1pc rise in Dublin and a 13pc rise in Limerick. Those are the findings in the latest DTZ Sherry FitzGerald survey of the regional industrial market.

While the regions may be narrowing the gaps, Dublin industrial rents are still well ahead with prime Grade A space ending the year at €75 per sq m. Brendan Smyth of DTZ says that the shortage of Grade A options and increased demand could push Dublin rents to reach €81 per sq m this year.

In relation to the Cork market Lisney says "typical rents" ranged between €43 and €48 per sq m which is below the €55 quoted by DTZ for prime headline Grade A rents in the rebel city. On the other hand Lisney also say that Kings Laundry are reported to be paying a rent of €75 per sq m a for a 2,800 sq m unit in Little Island which is well ahead of market rates but "at a level which was required to justify development."

Galway's strong performance has narrowed the gap on Cork as they reached €54 per sq m in the western capital.

Limerick's prime headline rents for industrial space rose to €43 per sq m as the Treaty City showed the highest level of regional activity which averaged an 11pc increase.

Consequently supply constraints have also emerged in sectors of the regional markets, especially for larger Grade A units in prime well-located areas. "A potential occupier with a requirement for a Grade A unit greater than 5,000 sq m faces limited options across all of the cities," says Smyth.

Vacancy rates fell but at varied rates and Cork and Galway markets have seen vacancy rates decline to more normalised levels while supply levels remain elevated in Dublin and Limerick.

Galway saw take-up reach 25,000 sq m, its highest level in over a decade although it dipped in the final quarter and overall occupier sentiment is reported as robust. Vacancy rates fell from 9.3pc in

2014 to 8.8pc as total available space declined to 42,500 sq m at the end of December.

Stronger occupational demand in Cork boosted overall volume of take-up by 17pc to 49,100 sq m, which is significantly higher than the city's long-run quarterly average.

Both Lisney and DTZ agree that vacancy levels fell in Cork but they differ on the current vacancy rates. While Lisney say it fell from 18.2pc to 17.4pc, DTZ estimate it to have fallen from 15.2 to 11.5pc. The latter estimates total quantity of available industrial space fell 25pc to 152,650 sq m which was also due to a slowdown in the rate of release of second-hand stock to the market.

Lisney say that capital values increased slightly over the year, but these uplifts were from a very low base. "Values remained well below the reinstatement cost and as a result, there was continued strong demand from owner-occupiers. Sales dominated the market, accounting for 74pc of the space transacted. Two large sales made up 40pc of the annual activity. These were DB Schenker's acquisition of three adjoining units in Courtstown, Little Island (7,830 sqm) and the receiver-led sale of the 7,650 sqm former Southern Fruits warehouse on Centre Park Road.

Lisney's Edward Hanafin says despite little movement in 2015, there will be upward pressure on rental values in 2016. "This will be particularly the case for well-located buildings close to the N40 South Ring Road. Owner occupiers will continue to be the main purchasers of vacant industrial property but investors will become more active.

"Vacancy rates will fall further across all regions. With rising values and limited supply, particularly of larger buildings, new design-and-build development will be considered. However, rents will need to be at higher economical levels that justify development and not just market rates.

In Limerick prime headline rents rose to €43 per sq m last year as the market was the most active of the regional centres with take up attaining 69,800 sq m, over the 12 months. These were in line with 2014 take-up but notably higher than the long-run average. The sale of the former Dell facility in Castletroy accounted for 31,600 sq m.

DTZ's John Buckley says that while the number of individual deals is marginally lower than 2014 levels, there was a notable increase in the number of deals transacting in the 1,000-5,000 sq m size category. "Sales accounted for 57pc of activity," he adds.

Consequently available space declined 22pc to 166,800 sq m reducing the vacancy rate from 23.4pc to 18.3pc. Nevertheless as older stock accounts for a large portion of the vacant stock, in fact there is a much lower availability of the quality stock that is in most demand. For instance Grade A availability has declined to 10,250 sq m, or 7pc of overall net availability and the majority of Grade A units are less than 1,000 sq m in size, thus highlighting the limited supply of good quality large floor plates.

"While development activity remains stagnant at present, the market is witnessing an increase in appetite for the redevelopment of existing facilities in established industrial locations.

"A good illustration of this is the recent announcement of a €21 million redevelopment programme at the Shannon Free Zone by Shannon Group. The five-year programme will see new and existing units refurbished to Grade A standard in a bid to attract major new investment into the region," he added.

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