Firms remain in `buy' mode as market grows in strength

Demand for purchasing rather than leasing industrial properties will continue next year and rent values will also continue to edge upwards, according to agents who say 1999 has been a record year for the sector.

As with other sectors of the market, a combination of strong economic growth and low interest rates has maintained demand. However, some developers are still building to lease, rather than sell, "which is not what the market wants", according to one property consultant.

Agents do not believe there will be an oversupply of industrial property next year, because virtually all buildings are being taken up before completion. Nor is there a large amount of speculative development. "The market has been reasonably controlled," says Bill Tuite, of Jones Lang Wootton. "Banks are taking a prudent approach and limiting development."

Lisney director Peter Browne says there is a shortage of good industrial investments, a situation which he does not see changing significantly next year.

Many of the properties are being bought by indigenous firms or their owners, says Mr Tuite. He believes demand from these purchasers will continue. In contrast, he says, overseas companies prefer to lease rather than buy.

Mr Browne says about 75 per cent of all transactions were to purchasers, while others put it a bit higher - at around 80 per cent.

According to Hamilton Osborne King (HOK), the end of the year has seen the first handful of lettings at rents of £8 per sq ft per year, which is a new level in the market. HOK say most new schemes are quoting around £7.50 per sq ft.

Mr Tuite says good industrial properties, with up to 15 per cent office space, are fetching £7.50 per sq ft, whereas non-prime units are making around £6.50 per sq ft. He says rents have moved up about 75p per sq ft during the past 12 months.

However, Mr Tuite says very little second-hand property is coming on to the market. "I have never seen so little second-hand stock on the market," he says. "Unless companies are trading up, it doesn't become available."

Because the economy is performing so well, he says there are fewer company liquidations - another factor contributing to the lack of second-hand product. One agent says developers who lease industrial property are often prepared to take a slightly lower rent than the market average, if the tenant is a strong one. "Where they had a good tenant, covenant owners would have settled for a yield of about 7 per cent last year, but now they will take 6.5 per cent," according to one agent.

Agents say little land is now available around the Naas Road, but the on-going development of the M50 and improvements to the Dublin-Belfast road and the N7 are opening up sites. HOK is predicting that Naas will become an industrial development "hotspot" next year.

"There was growing interest this year - and it will continue next year - in new locations on the main routes out of Dublin," says HOK director, Paul McNeive.

JLW was involved in several lettings of up to 20,000 sq ft at Fonthill Business Park this year, which achieved rental levels of £5.50 to £7 per sq ft. These included lettings to SGS, the vehicle testing company, and Glanbia, which took 45,000 sq ft on a four-acre purpose-built site being developed by Green Property.

A number of schemes are being proposed for around Blanchardstown, says Mr Tuite. He says there is strong demand for industrial property anywhere on Dublin's M50, where labour is available, because a sizeable proportion of staff in such companies are local.

Lark Developments is also set to build the second phase of a commercial development at Rosemount, comprising around 250,000 sq ft of units in various sizes, according to Mr Tuite.

Mr McNeive says there is particularly strong demand for high-bay warehouse buildings from logistics operators. He says there is growing demand for higher and larger warehousing buildings and a handful of buildings in excess of 250,000 sq ft will be built next year.

HOK says large, new, high-bay warehousing buildings are selling for up to £70 per sq ft. New buildings in the 10,000 to 40,000 sq ft bracket are making £70 to £85 per sq ft, and smaller units are fetching up to £100 per sq ft in some locations, including Bray, in Co Wicklow.

In line with other property sectors, the price of industrial development land has also risen. Land fronting motorways is making as much as £650,000 per acre - this was achieved by HOK for a nine-acre site at Western Business Park.