Demand for industrial property reached an all-time high in 2014 with more than 320,000 sq m of space taken in the year.   While noting that tax incentives which were in place until last December contributed to this, a new report by Savills Ireland emphasises that occupier demand is broadly based and is unlikely to be heavily impacted by the withdrawal of the Capital Gains Tax (CGT) Waiver.

Dr. John McCartney, Director of Research at Savills, attributes last year’s record take up to a strong recovery 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”. 

Savills’ Director of Industrial property, Gavin Butler notes that approximately two-thirds of industrial transactions in 2014 involved outright sales.  However, while this was partially driven by the availability of Capital Gains Tax incentives, it is more fundamentally rooted in the strength of the occupier market and the value for money that is currently available;

“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 7.7% 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.” 

Increase in Demand for of Starter / Enterprise Units

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 14% increase in the number of new business start-ups in Ireland in the year with sectors such as logistics (+14%) and manufacturing (+5.2%) growing strongly.  In total, nearly 18,000 new companies were formed last year.

Prime Capital and Rental Values to grow by 10%

Linked to this, Savills says that the overall vacancy rate continues to contract and there is an emerging shortage of 1,000 – 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 10% 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.

Other Market Trends

With industrial values still significantly below reinstatement cost there was strong demand from both owner occupiers and investors.  As a result, there was a welcome return of competitive bidding in the market during 2014.

This led to capital and rental values increasing for the first time in over 6 years. Prime values are now in the region of €550 per sq m and rents are in the region €57.50 per sq m per annum.

The strongest levels of demand were for modern facilities between 1,000 – 5,000 sq m with good access to main national primary routes and close to the M50.