Strong growth recorded in land and building values

Industrial MarketThis year's level of growth in industrial land and building values is unlikely to be repeated over the next 12 months, writes Edel Morgan

This year saw the trend continue where companies relocate from traditional industrial estates close to the M50 to business parks further out of town, but within easy commuting distance of the city.

More companies have chosen to sell up and capitalise on the development potential of their properties near the M50 and have moved to more affordable accommodation in modern business parks on the outskirts of the city.

The industrial market has been active during the first nine months of 2007 and CB Richard Ellis (CBRE) says the level of sales and lettings have been particularly strong with quite a number of transactions conducted off-market.

Traditionally, businesses in this sector have opted to purchase premises but, in the third quarter of this year alone, around half of the 70,000sq m (753,473sq ft) of transactions concluded in the third quarter were lettings. Rents edged upwards during 2007 and are now in the region of €129 per sq m (€12 per sq ft). CBRE expects no significant uplift in industrial rental values in 2008.

CBRE also says the take-up of industrial accommodation in Dublin looks set to exceed last year's record of 250,000sq m (2.691 million sq ft). The strength of activity in the market comes on the back of a buoyant sector with significant increase in output from pharmaceutical, chemical and technology companies. This in turn is driving demand for industrial accommodation and dictating the size, style and design of buildings that modern industrial occupiers require.

Savills HOK says industrial land values rose in the second half of the year, and a new benchmark was set for Ballycoolin in west Dublin in August with the sale of 1.6 hectares (3.93 acres) for €4.45 million. Another site of 0.33 hectares (0.83 acres) at Stadium Business Park sold for €1.5 million in September equating to around €3.12 million per hectare (€1.26 million per acre).

At Ballymount in south-west Dublin a price around €10 million was secured for a 1.2-hectare site, which included an old industrial unit. While values for starter/enterprise units rose by up to 30 per cent since January 2006, they levelled off in the second half of 2007. This, coupled with the number of starter and enterprise unit developments coming to the market over the coming months, means values are likely to remain at current levels in the first half of 2008, says Savills HOK. However, it says values for larger units continued to rise in the second half of 2007, the most notable rate increase being in Ballycoolin - up 14 per cent to €1,776 per sq m (€165 per sq ft) since the beginning of year. South-west Dublin values for large units have grown to €2,110 per sq m (€196 per sq ft) - evidenced in the sale of 3,000sq m (32,292sq ft) for €6.35 million at Citywest Business Campus in July. Savills HOK expects to see values in the area breaking the €2,150 per sq m (€200 per sq ft) mark during the first half of 2008.

Take-up of buildings on IDA estates - which are held under a standard 999-year IDA lease - continues to be slow with demand from IDA-approved companies weak. Manufacturing companies are now opting for lower cost economies in eastern Europe, south-east Asia and India where labour, materials, and land are more cost-effective.

The south-east and north-west regions of Dublin continue to experience a severe lack of supply of zoned and serviced sites, as well as existing and new buildings. In south-east Dublin occupiers are being pushed out to locations along the N11 as far south as Wicklow and Arklow, and a lack of suitable accommodation in the north-east of Dublin means companies are going as far as Balbriggan in north Co Dublin and Drogheda and Dundalk in Co Louth.

In north-west Dublin new developments coming on stream include phase three of Park Developments' Northwest Business Park where units from 450sq m (4,844sq ft) to 15,000sq m (161,458sq ft) are available.

Harcourt Developments' Premier Business Park in Ballycoolin is due for completion during the first half of 2008 and already a significant amount of space has been sold off-plans. The completion of phase two of Northcity Business Park by Rohan Holdings at the M50/N2 junction is expected by summer 2008 and comprises 5,953sq m (64,077sq ft) of space.

Agents say there is demand for over 70,000sq m (753,473sq ft) of industrial space in Dublin, of which 34 per cent is focused on the Dublin south-west corridor. Prime yields in this sector have remained stable at 4.75 per cent, although CBRE say that some softening in yields may be experienced over the coming months, particularly for secondary properties.

For purchasers of units below 500sq m (5,382sq ft) there will be good choice of product in 2008 with a number of starter/enterprise units developments planned. New developments will be coming to the market in the Ballycoolin area, including small units at Northwest Enterprise Centre, Premier Business Park, Blanchardstown Corporate Park and Stadium Business Park. On the southern side of the toll bridge similar unit types will be available at Kingswood Business park and Profile Park in 2008.

The feeling is that this year's strong level of growth in land and building values is unlikely to be repeated over the next 12 months.

However, as the majority of larger industrial buildings throughout the greater Dublin area are constructed on a design-and-build basis, there's unlikely to be an oversupply of space coming to market in 2008.