Record take-up of industrial space as economic recovery drives demand
According to property consultants Savills Ireland, vacancy rates for industrial space in Dublin will continue to decline this year following record up-take of approx. 274,000 sq. m in 2013. In its latest commentary on the industrial property market, Savills notes that strong growth in the manufacturing sector, combined with a recovery in retail sales will continue to drive activity in 2014.
Economist and Director of Research at Savills Ireland Dr. John McCartney said;
“There is now a growing sense that we are beginning to see a real turnaround in the economy. The manufacturing component of GDP, which is a critical driver of the demand for industrial space, increased by 2.1% in the year to September. This momentum appears to have continued through the winter period with the manufacturing PMI registering growth for the 8th successive month in January.”
In addition to the improvement in Ireland’s manufacturing performance, more recent figures show that retail sales are now also bouncing back. According to Savills this will add further to the demand for warehousing space;
“Employment and household incomes are now rising, and this is feeding through to the tills with a 3% uplift in retail turnover in the 12 months to December. In turn this is creating additional demand for logistics and distribution space”.
As a result of these factors, activity in the industrial property market strengthened throughout 2013. This culminated in take-up of approximately 274,000 sq m for the year – a new record for the Dublin market and a 45% increase on the previous year’s figure.
Despite increased demand, however, capital values for industrial space remain at very low levels. According to Gavin Butler, Director of Industrial at Savills Ireland, this has led to an increase in the number of buildings being bought outright rather than let;
“With market prices currently running at around half the cost of developing buildings, it has simply never been cheaper to buy industrial property in Dublin. As a result, sales increased from 20% of market transactions in 2012 to 47% last year.
According to Mr. Butler, low capital values are also militating against new development of industrial buildings, and this will result in the market continuing to tighten in 2014;
“With demand increasing and no new supply in the pipeline, we expect vacancy rates to continue falling in the medium-term. In particular we are likely to see a shortage of good quality accommodation over 1,000 sq.m. in prime locations which should lead to an increase in value for this type of space as the year progresses.”