Despite a slowdown in take-up of industrial property in Q3 2016 compared to Q3 2015, Savills believe that the outlook for the sector remains positive. Gross take-up of industrial property in Q3 was just shy of 102,000 sq m.
This represents a year-on-year decline of around 28 percent. Some commentators have attributed this to a sharp post-Brexit fall in the value of Sterling which should, in theory, create a headwind for Irish exports.
However, John McCartney, Director of Research at Savills Ireland disagrees:
“In the longer term we agree that weak Sterling is likely to drag on exports to the UK, and this may impact negatively on the demand for manufacturing and logistics space. However the same logic dictates that weak Sterling should have a positive effect on imports from Britain. Given that Ireland’s merchandise imports from the UK exceed our exports to that market, the long-run impact of the currency shift could therefore be a net positive for logistics demand.”
Meanwhile, Gavin Butler, Director of Industrial at Savills Ireland cautioned against reading too much into the slowdown in take-up:
“The Q3 2016 take-up figure is being compared with an exceptional Q3 2015 when 141,000 sq m of industrial space was let or sold – a record for the Dublin market. In fact, although it is almost 40,000 sq m down on Q3 last year, this quarter’s take-up remains among the strongest in the current economic cycle and is 62 percent higher than the long run average.”
Outlook:
There is now a general scarcity of good quality units across the greater Dublin area, with obsolescence an issue for a significant proportion of the remaining available stock. Although most occupiers would prefer to buy rather than rent, the yield profile of existing units and the fact that properties bought between 2011 and 2014 must be held for seven years to avail of the Capital Gains Tax waiver, means that the number of units coming up for sale is limited. This is compounded by the fact that construction of new industrial property has only just resumed with Rohan Holdings and Green REIT leading the way with developments at Dublin Airport Logistics Park and Horizon Logistics Park respectively.
With capital values rising strongly, however, further speculative development and the delivery of new space will be a key feature of the market in 2017, particularly in north Dublin. However, with prime values still below replacement costs, the potential for further capital and rental growth in a tightening market remains in place.