Sunday 21 January 2018

Industrial rents and capital values rise in strongest year since 2007

Unit 7 at Northwest Business Park, which was put on the market by Knight Frank las year. 2014 was the busiest year since 2007 for the industrial sector, say Savills
Unit 7 at Northwest Business Park, which was put on the market by Knight Frank las year. 2014 was the busiest year since 2007 for the industrial sector, say Savills
Peter Flanagan

Peter Flanagan

A record amount of industrial office space was taken up last year, according to a new report from Savills.

Some 320,000 sq m of office space was taken during 2014, helping to push prime rental and capital values up by 10pc.

The report notes that while tax incentives which were in place until last December contributed to record levels, it emphasises that "occupier demand is broadly based and is unlikely to be heavily impacted by the withdrawal of the capital gains tax (CGT) Waiver".

Savills head of research Dr John McCartney said much of the growth came from the uptick in the consumer economy.

"Ireland is continuing to create lots of jobs and, as a result, the consumer economy is gathering strength. This is driving a faster flow of goods through the economy which, in turn, is generating demand for logistics and warehousing space," he said.

Director of Industrial property, Gavin Butler added that two-thirds of industrial transactions in 2014 involved outright sales but discounted the importance of the CGT waiver.

"The tax breaks undoubtedly contributed to strong sales in 2014, particularly in the second half of the year as the CGT deadline drew closer.

"However, sales were also driven by the fact that capital values remain well below reinstatement costs."

While the withdrawal of the CGT incentives and the 7.7pc uptick in industrial values over the last year may see the ratio of sales to lettings decline somewhat in 2015, John McCartney says buyers are likely to remain active.

"This is due to the low prices at which properties can still be bought and the effects of quantitative easing which should ensure a greater supply of inexpensive finance over the months and years ahead."

Elsewhere in the report, Savills notes that the availability of starter / enterprise units below 1,000 sq m also began to tighten in 2014.

The demand for these units is being driven by a 14pc increase in the number of new business start-ups in Ireland in the year with sectors such as logistics and manufacturing growing strongly. In total, nearly 18,000 new companies were formed last year.

The overall vacancy rate continues to fall and there is an emerging shortage of 1,000 to 5,000 sq m units in prime locations. With no new supply in the pipeline and the number of assets coming to the market through receiverships likely to decline as the economy improves, capital and rental values for prime industrial space are set to rise by more than 10pc in 2015.

This means that the gap between values and the cost of building will narrow and there may be opportunities for pre-sales / pre-lets as the market continues to improve moving through the year and into 2016, Savills said.

While vacancy levels remain high, the report makes clear that the industrial sector experienced its best year since the boom in 2014 and is in a relatively strong position going in to 2015.

The 11,830 sq m Creative Labs property in west Dublin was the biggest industrial property to be taken over in 2014, followed by Building 1 at the Orion Business Campus which had a ground area of some 11,427 sq m.

Unit D at Greenhills Industrial Estate in Dublin 24 was the third biggest deal in the country.

Most deals involved sites close to the M50 motorway.

One of the few exceptions was Butterly Business Park in Artane in north Dublin.

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