Monday 19 March 2018

Industrial units fighting fit in the wake of the crash

Two-division UFC world champion Conor McGregor has seen the benefit of training in former industrial premises on the Naas Road
Two-division UFC world champion Conor McGregor has seen the benefit of training in former industrial premises on the Naas Road

Donal Buckley

When the property crash struck, industrial landlords had to think outside the box. Now that the recovery is underway some are retreating to their boxes.

The crash had put paid to their dreams of warehouses blossoming into high-rise apartment and office blocks, as had developed in Sandyford Industrial Estate. So during the recession many industrial landlords had to look to a wide range of alternative uses for their vacant warehouses and empty factories or what is colloquially known in the trade as sheds.

Thankfully for such landlords one of the effects of the crash saw consumers switch from self-indulgent lifestyles to healthier lifestyles where fitness and self discipline became fashionable. So sports coaches, physiotherapists and entrepeneurs responded to demand from millennials and set up gyms, fitness studios, yoga classes, pilates studios and five-aside indoor football pitches in industrial estates.

Kevin McHugh of William Harvey the industrial specialist agency says, that both Irish and UK leisure and sports firms have taken space or are looking for space in Dublin. These include Jump Zone which operates trampoline parks at Airways Industrial Estate, Santry, Dublin 17 and at Heather Road, Sandyford Industrial Estate, Dublin 18. The gym operator Crossfit also has a gym in Stillorgan Industrial Park in addition to those in a number of residential areas.

UK trampoline operator Flip Out is reported to be looking for a centre with about 20,000 to 40,000 sq ft in Dublin.

SBG (Straight Blast Gym) Ireland, run by John Kavanagh, trainer of mixed martial arts champion Conor McGregor, took a lease on a 13,000 sq ft former warehouse and converted it to a gym at the Glen Abbey complex on Belgard Road in Tallaght. SBG Ireland's 10,000 sq ft headquarters is located within the Concorde Industrial Estate on the Naas Road. The business started in a garage and a number of its affiliated gyms around the country are located in industrial estates and business parks.

Empty warehouses with lots of space and minimal fit out are ideal properties for a number of leisure and fitness operations. Industrial rents are always low relative to the amount of floor areas compared to offices and retail. Partly because of their locations in industrial estates, warehouse rents fell to less than €4 per sq ft during the crash although noow prime industrial is more than €9 per sq ft. Low rents reduced the risk for first-time leisure operator tenants who were undertaking fresh start-ups while some landlords were only too happy to facilitate the new business trends.

But it wasn't just entrepeneurs that sought out the sheds. During the crash demand also increased from a variety of Christian and other religious groups with a variety of ethnic backgrounds. For them the layout of warehouses with high eaves height and capacity for large groups at low rents were also attractive.

While the parking might not be as plentiful as with office blocks, the timing of their religious services and community meetings at weekends when industrial estates were relatively quiet, meant that there was plenty of parking on the surrounding roads of the industrial estates.

There were also a few landlords who were forced by the crash to shed their usual caution about tenants especially when the tenants were offering cash for premises in remote locations. Unfortunately some of those landlords found out the dangers of cash tenants only after Gardai raided their premises to discover industrial scale cannabis grow house operations.

However in the last two years since the economic recovery has got underway traditional warehouse occupiers such as distribution and agency businesses have been expanding and seeking increased amounts of warehouse space. Not alone have they mopped up a lot of the vacant industrial space, but they have also pushed up rents. Indeed the industrial sector has been the top performer for investors in terms of yields and returns according to the IPD/SCSI commercial property index.

According to figures from JLL more than 7.4 million sq ft of industrial space was taken up in Dublin during the 27 months to the end of March last. In addition CBRE reckoned demand at a further 732,000 sq ft at the end of Q1 this year.

CBRE's Garrett McClean says most of this demand is for better quality space in the areas such as Dublin South West N7 corridor and to a lesser extent the Dublin North N2 corridor.

Hannah Dwyer of JLL said she expects demand to continue steady for the remainder this year and that total year-end take up may exceed 2.5 million sq ft, a similar levels to last year.

While there has been some new development to meet this demand, most of it is focussed on the requirements of the larger logistics operators. As demand grows, rents may also reach levels which will make it attractive for some developers to redevelop older stock.

Such redevelopments may also eat into the space that could be available to leisure operators.

Consequently reduced vacancy levels and increased competition has also meant that landlords are not as open-minded about alternative types of business in their properties.

Alternative uses such as sports and religious uses need to get planning permission for change of use and also fire safety certificates because instead of just a small team of warehouse operatives, the planning permission needs to reflect the fact that leisure and religious users accommodate many more people who require higher health and safety standards.

"Landlords are concerned that planning applications for change of use can take time and they can be refused," explains Kevin McHugh.

"By waiting they risk losing an opportunity to let a premises to another permissible tenant," he says.

Most industrial landlords are retreating - except for those who recognise how the change of uses may enhance the value of their properties as permission for community and leisure uses may bring the property a step closer to retail uses which are up the value chain.

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