Strong GDP growth forecasts - combined with the factor of demand for prime properties outstripping supply - makes the Dublin industrial property market an attractive option for investors, according to a new report by London-based international property consultants King Sturge and their Dublin affiliates, Ganly Walters.
Rents for industrial distribution properties in Ireland are forecast to rise by more than 5.2 per cent per annum over the next four years says the report, entitled European Industrial Property Markets. On a European level, the main findings show industrial property values increasing in most countries, while vacancy rates are at historically low levels.
In the last two years rents have increased by an average of 7.4 per cent per annum in Western Europe, and are forecast to continue to grow by more than 5 per cent over the next few years. Over the same period, rents in Eastern Europe have fallen by an average of 7.2 per cent. In some city regions, the vacancy rate is less than 5 per cent.
Average Dublin rents for industrial property have risen by 8.2 per cent in the past year. The report finds that the extent of the rental increases has varied considerably across the EU over the last couple of years. In the city regions of Madrid, Barcelona, Milan, London, Lyon and Paris they have increased by over 10 per cent per annum, while in Berlin, Amsterdam and Manchester the average rise has been less than 3 per cent.
"The Irish economy is booming and this has led to strong demand for industrial property in Dublin. The total stock of warehousing and light industrial property in the region is comparatively small at around 27 million sq ft, although with a third of it constructed in the last five years, the stock is relatively new," the report says.
However, it also underlines the drawbacks of this buoyant market. "Despite some land becoming available for development, supply is failing to meet demand. Already, most of the 1.6 million sq ft of industrial space under construction is presold or pre-let. Much of the 2.152 million sq ft of available stock consists of small and dated industrial premises. Banks have begun to take a more restrictive policy on lending for property purchases."
Commenting on the report, Paul McDowell of Ganly Walters said the data showed Dublin riding top of the list, both for growing rents and return of yields, which reflected the strength of the economy.
"On the investment front, industrial property was not traditionally seen as a strong area, but this sector is becoming more sophisticated as you find that the differences between office and industrial merge into a grey area. This is a trend we are seeing more of in Dublin," he added.
Historically, growth in industrial property rents has been closely tied to GDP. Rapid rental increases have accompanied strong GDP growth in Madrid, Barcelona, London, Dublin, Paris, Lille and Lyon. Along with Dublin, there are three other cities highlighted as holding attraction for investors: Madrid, Barcelona and London. GDP growth forecasts are relatively high, while the outlook for supply in these city regions is low when compared with demand.
In the case of London, although the GDP growth forecast is slightly less than the average for the European Union, the outlook for supply is low when compared with demand for industrial property, according to the report.
Countries with high industrial land value include the United Kingdom, Spain, Germany, the Netherlands and Ireland. The most expensive industrial land is in Greater London, at between €200 and €580 per sq m. Comparatively low land value countries include France, Belgium and Italy.
In some European city regions the capital value of a square metre of industrial land for new development is less than the annual rent from a square metre of built industrial property, most notably in Edinburgh and Milan. Both cities have industrial land values that are not especially high for Europe - but their industrial rents are among the highest in Europe.
For the purposes of the report, data was compiled from across Europe to research and examine industrial rents, yields, land values and market activity within the context of transport infrastructures.