Sweeping shifts are occurring in Dublin's industrial and logistics sector with Brexit and the Covid-19 pandemic abruptly altering the old order in a "fundamental and permanent fashion", according to a new report by Savills.
In terms of Brexit, the report, which is focused on the second quarter of this year, says it is clear we have entered a period of “major structural change” with shifts in the composition of goods being traded, stockpiling and alterations to transit routes.
The value of imports from Britain declined by 35 per cent in the first five months of 2021 compared to the same period in 2020. Irish importers pivoted to the European Union, with the value of EU imports increasing by 17 per cent year-on-year over the period.
Furthermore, imports this year from Britain have likely been supported by temporary factors such as the stockpiling of raw materials and merchandise to protect from uncertainty as the Brexit transition period ended.
There was also a surge in online shopping through the pandemic lockdown this year, much of which was delivered to Ireland from Britain.
“Without these boosts, imports from Britain would likely have fallen even further,” the report notes. “By contrast, Irish exports to Britain increased by 12 per cent, suggesting that Irish exporters were able to deal with Brexit-related disruption relatively well.”
The report says the early signs of strength from Irish exports in the face of Brexit “are promising” while imports from the EU should be able to fill gaps created by Brexit. The agricultural sector is however the “most exposed” sector.
From an e-commerce perspective, Ireland is likely to see a greater need for warehousing and associated logistics infrastructure as goods previously stored and distributed via Britain are onshored to Ireland.
In terms of market activity, 428,000sq ft of industrial and logistics space was transacted in the second quarter, representing a decline of 5 per cent.
While take-up remains well below the five-year average of 755,000sq ft, this slow-down is reflective of the lack of suitable stock for occupiers, rather than pandemic-related factors with occupier demand remaining strong.
The largest deal of the quarter was for 165,000sq ft in Unit D8, Horizon Logistics Park, which is currently under construction. The second largest deal of the quarter was the leasing by Exertis of Unit 21, Fonthill Business Park, comprising 86,250sq ft.
The report says the lack of suitable supply remains “a fundamental driver” of the industrial and logistics market – a dynamic that will “inevitably favour landlords” who can demand higher rents.
“Despite supply ramping up, this imbalance in the market is expected to remain in place for the foreseeable future with the majority of new supply being leased prior to completion,” it says.
On e-commerce, the report says the pandemic has accelerated recent trends. Between 2015 and 2019, the share of e-commerce as a proportion of credit and debit card spending grew by an average of 6 per cent per annum, but this almost doubled to 11 per cent in 2020.
“We can see that new record highs were achieved in April 2020, November 2020, and January 2021, which corresponded to periods when the country was in lockdowns,” it says.
“The trend has reverted as the economy has reopened and consumers once again familiarise themselves with the novelty of bricks and mortar shopping experiences.
“The share has declined to 43 per cent at the end of the second quarter – which is the same proportion as the second quarter of 2020 – but 5 per cent up on the 38 per cent recorded in the second quarter of 2019.”
Savills said the “real question” is how much of the e-commerce habits built up by consumers will remain as a permanent increase in demand and how much will be clawed back by traditional retailers once the dust settles.
Forrester Analytics projects that the value of online retail sales will continue to grow over the coming years, growing by 50 per cent from €5.4 billion in 2021 to €8.2 billion by 2025.