Sunday 22 September 2019

The right moves: Industrial market finally recovers - and this time it really is different

Paul McNeive
Paul McNeive

Paul McNeive

The industrial market is a sector that I worked in for many years, and it is no surprise to see a well-worn pattern repeating itself again; industrial property is usually the last to suffer in a downturn, but is also the slowest to respond in a recovery. And agents have had a tough decade, as values collapsed and construction ground to a halt. Now, however, the market has finally turned and developers are back building speculatively. But what are the factors influencing this upturn, and can it last?

Take-up and rents have been slowly improving over the last five years, and now, for the first time in over a decade, there is a small wave of speculative construction, with over 50,000 sq m of new space likely to be completed around Dublin this year. And there is an interesting mixture of familiar developers and investors and some significant new players coming through.

The new developers include companies like The Exeter Property Group, a real estate investment management company from Philadelphia, USA who are building a 10,000 sq m building at Greenogue, Rathcoole, Co Dublin. Nearby, UK developer MountPark is building a 12,000 sq m facility at Baldonnel Business Park.

Another of the new developers is Green Reit, who are to build approximately 7,500 sq m at Horizon Business Park, on the southern boundary of Dublin airport.

Stalwarts of the market, Rohan Holdings, are busy at the Dublin Airport Logistics Park, where they have just let a 4,000 sq m property. The company is now in the process of finishing a 3,000 sq m building and has just started a 5,000 sq m facility - all developed speculatively. The quoting rent for the latter building is €95 per square metre. Rohan Holdings is also starting two 2,000 sq m properties at the North City Business Park on the N2/M50 junction.

Other developers with industrially-zoned land, such as Harcourt Holdings and Park Developments, have been applying for planning permission for new schemes to meet the improving demand. Most of the new supply will be larger buildings as small unit schemes still appear to be unviable.

Industrial specialist, Gavin Butler, a director at Savills, told me that another new dynamic is a very strong crop of 'design-and-build' enquiries, for buildings of over 10,000 sq m, a factor which also hasn't been seen for over 10 years.

Design-and-build enquiries are where an occupier engages a developer to both design and construct their building - often because it is somewhat specialised and is unlikely to be found on a speculative scheme. Butler expects "a handful" of these deals to be done this year.

The phrase 'industrial market' is really a misnomer by now, as the majority of demand is for 'logistics' facilities, and there is very little 'industry' or manufacturing as originally described by the term. Logistics buildings can be operated by owner-occupiers but are usually operated by specialist companies, to whom warehousing and distribution has been outsourced.

Most of the enquiries for new space are to lease, with the majority of sales taking place in the second-hand market. While office and retail investments became expensive, prime industrial yields almost halved to 5pc, and anyone brave enough to back that cycle in the depths of the recession, has been richly rewarded.

Another factor, Butler told me, is that there are several international institutional investors looking for deals here in excess of €30m but that buildings of that scale (excess of 20,000 sq m) are very rare.

The boom in the construction of Data Centres kept several contractors alive during the downturn, and that phenomenon looks set to continue.

Another old favourite of developers was breaking up large plants into smaller units and it looks as if the former Hewlett Packard facility at Leixlip, Co Kildare, may be heading that way.

The property comprises over 100,000 sq m on 79 hectares and selling agent, CBRE director Willie Norse, told me that he is in discussions with a preferred bidder, described as an asset manager, investor and developer. The price is between €40m and €50m.

Agents report a healthy crop of new enquiries through IDA Ireland and Gavin Butler says there is a new wave of interest from UK manufacturers exporting to Europe and looking to establish satellite operations here, post-Brexit.

True to form, just as other sectors of the market appear to have peaked, the industrial market is gathering momentum.

With CBRE predicting double-digit rental growth this year, it looks like there is plenty to play for in the industrial sector.

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