Buoyant economy fuels continued growth in industrial warehouses
E-tailing and web hosting centres will have a major impact on the Irish industrial warehouse market in the coming years. As online security systems become more sophisticated and secure, higher numbers of Irish people will choose to shop online to avoid crowds and traffic jams, fuelling demand for warehouse units and local distribution centres.
The Dublin industrial warehouse market continues to benefit from the buoyant economy, with activity levels at a premium throughout the year. According to DTZ Sherry FitzGerald's Industrial Market Quarterly Report, the pace of development continued to increase significantly during the first half of the year, with a large proportion of newly developed space taken up immediately, a reflection of the market preference for modern design/build accommodation.
In terms of prices, the report notes that prime industrial buildings in excess of 20,000 sq ft are currently achieving rental levels in the range of £6.04 to £7.71 per sq ft, while capital values in the range of £80 to £110 per sq ft are being achieved, depending on the location and specification of the individual properties.
"Looking to the future, on foot of recent land rezoning, an increased proportion of activity in the industrial market in the year ahead is likely to take place north of the river Liffey, with an upsurge in construction activity in locations from Blanchardstown to Swords. Land values in such locations are expected to increase, fuelling further growth in rental and capital values," said the report. The area around Baldonnel Aerodrome is also becoming popular as investors speculate on the potential of the current Air Corps base to be the site of Dublin's second airport.
Internet shopping is still at development stage in Ireland and will predictably follow trends set in the US and UK markets. Most national retail chains, in both grocery and non-grocery products, have embraced high tech systems that allow customers to order products online. Philip Lammas at the industrial department of DTZ Sherry FitzGerald said that because this market is very much in its infancy in Ireland, retailers themselves aren't sure of their requirements. It would be difficult for developers to cater for retailers' needs, as it is likely they will require a high degree of flexibility as they struggle to estimate volumes of online orders. Currently, a high proportion of retail warehouse facilities are concentrated in a ring around Dublin, close to roads like the M50 and the Naas Road. Transport infrastructure is a major factor in deciding where to locate, and the northwestern area of Dublin, from Blanchardstown to Dublin Airport, has seen greenfield development over the last year. There is still a good stable supply of industrial zoned land available in Dublin, and to date, little speculative development, with most construction happening on a design-and-build basis.
DTZ Sherry FitzGerald's industrial report also stated that the combination of the strength of demand and a falling vacancy rate is likely to result in an increase in the level of speculative development in all size ranges.
"The amount of speculative development to date has been minimal in respect of accommodation above 5,000 sq ft. In regard to units under 5,000 sq ft, speculative development has been taking place across the board as regards location. Demand is such that most schemes are selling off the plans, with price increases during the course of construction common," said Philip Lammas.
The 91-acre Park West business park along the M50 is the biggest development in this sector to date. On completion, it will have some two million sq ft of commercial buildings, about half in light industrial, warehouse and office buildings. Further along the M50, the Rosemount Business Park in Blanchardstown is in high demand from companies looking for strategic locations close to the airport, the port and the national road network.
Lark Developments has recently launched the second phase of this park, which will comprise approximately 365,000 sq ft on 19 acres: Viking Direct, the large US multinational company, and Record Data Ltd are among the occupiers already committed. A new 150-acre park is planned at Fassaroe in Bray, and this will be one of the biggest developments in the southeast area.
Dublin is divided into four main regions, with the northwestern Blanchardstown region the area most in demand. Terry Fahey of Lambert Smith Hampton reports strong demand for the southwest/Dublin 12 region, around the Naas Road. Apart from the Fassaroe development in Bray, the southeast region is seeing very few new schemes. There is a good level of demand and enquiries from UK, US and European companies, according to Lammas, especially for facilities over 15,000 sq ft. "There is also strong demand for high tech units in the region of 200,000 sq ft. As Internet use and e-commerce has exploded in Ireland, there has been a huge demand for web hosting centres - also known as data centres or carrier hotels - for the storage of computing equipment and access to data communication networks with the ability to operate on a continuous, secure and fail-safe basis," he said. New purpose-built accommodation will be seen in a number of locations over the coming months as the supply of secondhand stock depletes.
Philip Lammas believes that more investors are coming into the small industrial property market as a result of being pushed out of the residential market following the third Bacon Report. Demand for freehold, second-hand premises in established locations is very strong, especially because they may have redevelopment potential.
"We have seen this in locations such as Stillorgan and Sandyford over the past couple of years, where the redevelopment values of premises have exceeded their existing use values, and the result has been the redevelopment of some of the older industrial stock into office accommodation," he said.
Another trend of the last year has been in the area of warehouse density. The average internal ceiling heights of new buildings are now in the region of 30 to 40 ft; average heights two years ago were between 18 to 22 ft. As premises get larger and taller, densities are lowering to allow for all-round circulation and other features. Developers of premises of this nature often seek a relatively higher price/rent per sq ft, as effectively, they are losing out on profit that could otherwise have been gained from achieving maximum site density through the construction of an alternative type of facility.