Iput and Aviva deals show growing strength of Irish industrial market
The industrial property market got the year off to a strong start in 2019, although some secondary properties are reported to be priced below development costs.
Signs of growing confidence in the sector were reflected in two purchases by major institutional investors this year. In addition the ranks of developers with new projects under way is increasing, with the Flood family's Erigo breaking ground in recent days on the new Vantage Business Park in Dublin's northside.
This confidence was further underlined by the MSCI index for the fourth quarter of 2018 showing that industrial property was the top performer for the year with north Dublin properties in the vicinity of Dublin Airport posting the strongest total returns at 14.4pc in 2018 - more than 500 basis points above the market average of 9.1pc for the 12 months.
Gavin Butler, of Savills, says that after 10 new logistics facilities, comprising 50,560 sq m (544,223 sq ft) of space, were completed in Dublin during 2018, construction will commence on at least a further 70,000 sq m (753,474 sq ft) in 2019, with more than 50,000 sq m (538,195 sq ft) of this already pre-let or pre-sold.
"Prime rents are likely to continue rising in the short term due to the strong levels of demand and, as build costs escalate, it will be the early movers in 2019 who get best value," he adds.
"There continues to be a significant gap between new-build and second-hand prices. Development costs still exceed the values owner-occupiers are prepared to pay developers for new space, by comparison to the cost of second-hand stock. However, we see this gap diminishing significantly in 2019 as strong levels of interest continue to drive second-hand values. Rents are likely to exceed €110 per sq m per annum in 2019 with yields compressing further," Mr Butler says.
Rents ended 2018 at €105 per sq m according to JP McDonagh, of Knight Frank.
Hannah Dwyer, of JLL Ireland, is forecasting that total take-up of stock in 2019 will achieve around 279,000 sq m (3,003,131 sq ft) similar to last year.
"This will be dependent on supply coming on to the market and continued interest from companies looking to take space. As the uncertainty around Brexit continues, we have seen some occupiers stalling in their decision-making processes, and until further clarity of the Brexit outcome is confirmed, this is set to continue. Wider global economic risks are therefore casting some air of caution."
Nevertheless her colleague Nigel Healy said: "If we continue to see the level of demand that we saw in 2018, we are forecasting rental growth in the market in 2019 of up to €107.6 per sq m for the best buildings in the best locations… as the availability of existing stock remains tight and pipeline schemes on site remain limited."
Philip Harvey, of HARVEY, also believes that rents will continue to grow and that yields may tighten a little bit.
"While some occupiers are planning for Brexit, it had little impact on the market until the last quarter of 2018. We have seen increased demand for short-term lettings of about a year as occupiers don't know how they will be affected," he adds.
Garrett McClean, of CBRE Ireland, says 15 industrial investments of more than €1m completed in the Irish market during 2018 and Dublin yields sharpened to 5.1pc at the end of 2018. He also expects them to trend stronger in 2019.
Marian Finnegan, of Cushman & Wakefield, says industrial, and in particular logistics "has been noted as high in investors' preferences across Europe. This has seen yields in the sector compress strongly over 2018, with the previous historic low for Europe now surpassed. This coincides with the trend in Dublin, where prime industrial yields reached 5pc in Q4 2018".
She expects them to remain at around those levels this year.
Already since the start of this year there have been two big institutional purchases. Iput, the Irish property investment fund, acquired Unit 1, Dublin Airport Logistics for €19m. Extending to 17,176 sq m (184,886 sq ft) on a high-profile standalone site of 8.4 acres, the vacant building benefits from internal heights of 9.5 metres and five loading doors.
Iput is undertaking a substantial upgrade programme to meet international logistics standards prior to re-letting. HARVEY, which advised Iput on the deal, is now quoting an annual rent of around €1.66m for the property. Bannon advised the vendors.
Dublin Airport Logistics Park is situated close to the M1, M2 and M50 motorway network and Dublin Airport.
Last year Iput acquired two logistics facilities in Dublin 15. It paid €12.3m for 103 Northwest Business Park - a 10,904 sq m (117,380 sq ft) warehouse with 1,589 sq m (17,104 sq ft) of offices. Even while it was being refurbished agents Savills let it in Q3 2018.
Iput also bought a 9,800 sq m (105,500 sq ft), unit in the same park.
Michael Clarke, head of investment at Iput, said it continues to increase its logistics portfolio and now owns more than 2.4 million sq ft of logistics space in Dublin.
Also last month Aviva Life & Pensions UK Ltd bought Unit H Aerodrome Business Park on behalf of a group of private investors for €7.555m reflecting a net initial yield of 5.19pc rising to 5.49pc. Extending to 4,290 sq m (46,177 sq ft) on a site of 2.97 acres, the warehouse is situated at the front of the south-west Dublin business park. The site also offers capacity for future expansion of the building.
It is let to Fannin at a current annual rent of €425,000 stepping up to €450,000 in 2022. HARVEY represented the vendor and Knight Frank acted for Aviva.
A new industrial development vehicle from the Flood family, Erigo, broke ground at Vantage Business Park just a few days ago and added to the growing number of developers who are currently generating new supply. The Floods' track record includes significant buildings at Northwest Business Park and a logistics hub at Orion Business Campus in Ballycoolin. Erigo will develop two buildings in the 6.7 acre first phase of Vantage and then develop on the 20-acre second phase.