Boost for warehousing

MarketAnalysisThe warehousing market in Ireland and Europe is being boosted by investors although demand from occupiers has seen a slow recovery, according to a survey by Jones Lang LaSalle of the market across Europe.

Low economic growth has hindered recovery in most of Europe but the investment market has been extremely active with a large volume of cash chasing very limited product, the report found.

In Ireland, the report said, demand picked up slightly in the Dublin market in the second quarter of this year and the leasing market has shown tentative signs of improvement as a number of transactions have been agreed (but not yet signed).

The majority of industrial transactions in 2005 continued to be purchases by owner occupiers of smaller units of approximately 400sq m (4,305sq ft) or less. As a result of limited letting activity in the larger end of the market, it is difficult to gauge current open market warehousing rental levels. Market agents indicate that the highest achieved rent is €118 per sq m (€10.96 per sq ft) per annum.

There are still no indications of an improvement in the manufacturing market in Ireland and there have been calls for a change in IDA policy to allow other uses for sites, such as distribution, to encourage inward investment, the report said.

High levels of investment activity persisted in the Irish market and there is continuing strong competition for investment product. Mid-point yields were stable at 6.3 per cent, during H1 2005, the lowest yields in Europe outside of the UK.

Demand for distribution space across Europe has recovered despite weak overall European economic growth, driven by downstream retail demand, continuing merger and acquisition activity and the growing economies of the new EU accession countries, the report said. However, falling construction costs and continuing cost pressures on occupiers has kept rental growth to minimal levels and Jones Lang LaSalle's warehousing index has shown only 0.8 per cent annual rental growth. This low growth has not discouraged investment interest.