Strong demand for Dublin logistics space continues in Q2
New research from property adviser, Savills Ireland has revealed that 549,000 sq ft of industrial & logistics space transacted in Dublin during Q2 2021, an increase of 22 per cent on the same period in 2020.
This brings the half-year total to 980,000 sq ft which is the lowest H1 take-up recorded since 2011. With the vacancy rate standing at an all-time low of 1.2 per cent at the start of Q2, it is a lack of supply rather than demand that has led to such low levels of take-up. Only one new building reached practical completion in Q2, Unit 632 Northwest Logistics Park, a 60,000 sq ft unit, which was let in the same quarter it completed. In total, there were 45 transactions, only 12 of which were sales reflecting the continuing lack of freehold opportunities available on the market.
According to Gavin Butler, Director of Industrial & Logistics in Savills: “Q3 will see the delivery of almost 450,000 sq ft of new space to the market. With 360,000 sq ft of this space already reserved, it is evidence of the pent-up levels of demand for logistics space. Another 1.3 million sq ft of new space will be delivered in Q4, 900,000 sq ft of which is already committed. In total, 2021 will see the completion of over 1.8 million sq ft of new space, the highest amount of new space built over the last five years.
"Brexit continues to contribute to take up as UK based occupiers whose supply chains into Ireland come through the UK are looking to establish operations here to avoid tariffs and delays getting product through the ports.
"The vacancy rate at the start of Q2 2021 was at an all-time low of 1.2 per cent and reflects the lack of supply of good quality second-hand space coming to the market. There is a preference amongst occupiers to occupy new / modern stock despite the higher rents and longer lease terms required by landlords compared with second-hand buildings.”
Andrew Blennerhassett, Research Analyst in Savills, says: “Data from Forrester Analytics show that online retail sales as a percentage of total retail sales in Ireland have grown from 6.5 per cent in 2014 to 13.7 per cent in 2020, with overall online spending increasing from EUR1.8 billion to EUR4.4 billion. Online sales’ share of total retail sales is projected to increase to 16.2 per cent (EUR5.4 billion) in 2021 and 22.6 per cent (EUR8.2 billion) by 2025. There is a strong positive relationship between online retail sales and demand for logistics space and this growth will drive additional demand for space over the period.
Analysing vacant stock, we find that 67 per cent is over 20 years old and there is no vacancy among units built in the last 10 years. This demonstrates a dearth of good quality buildings that are capable of accommodating efficient distribution platforms for end users. This combination of strong demand and an ultra-low vacancy rate is fuelling rental growth and we anticipate prime rents to reach EUR11 psf per annum over the coming months. The limited supply that does reach the market is unlikely to remain on the market long as demonstrated by Unit 632 in Northwest Logistics Park’s lease this quarter.
Increasing investor interest for the limited opportunities in the industrial and logistics sector is placing downward pressure on prime yields which are now 4.25 per cent. The first half of the year saw a number of industrial assets trade which drove overall investment in the sector this year to EUR413 millio. This is already the strongest year on record for investment in the sector and the Core Industrial portfolio is expected to transact later this year for in excess of EUR170 million. We are aware of several new-build industrial assets with long leases which are due to come to the market later in the year, and we expect these to achieve yields in the region of 4.00 per cent.”