Demand is still slow in the industrial sector, and agents are cautious aboutpredicting recovery, writes Justin Comiskey.
With industrial rents and values generally stable throughout 2003 - after a year of relative decline in 2002 - cautious optimism seems the most apt phrase to describe how many in the sector view prospects for 2004.
In its most recent bi-monthly report, Gunne reported that "confidence is slowly returning to the industrial sector with a number of reassuring transactions taking place over the past two months, particularly in south-west Dublin". Hamilton Osborne King predicts "an increase in the amount of speculative development in 2004 as confidence returns and previously shelved expansion plans are re-appraised and acted upon by occupiers". But Bill Tuite of Jones Lang LaSalle says that the fundamentals of the market are not good at the moment and "this will have a big effect on take-up of space".
The industrial sector has been a real laggard in terms of performance in comparison to other areas - like the retail sector - of the commercial property market in recent times. Since the industrial market peaked in 2001, there has been downward pressure on rents and values coupled with rising vacancy rates. Large factories - particularly in IDA estates - are the most difficult spaces to fill, as demand has weakened considerably in response to the closure of manufacturing firms, mainly in the IT sector. This has resulted in less space being sought further down the food chain in areas such as logistics.
Rents in the Dublin industrial market now are in the range of €110 to €120 per sq m (€10 to €11 per sq ft) for prime new buildings and between €65 and €85 per sq m (€6 to €7 per sq ft) for pre-1980 second-hand buildings. Prime new buildings are now making between €1,500 to €1,775 per sq m (€139 to €164 per sq ft), while secondary units are making between €700 to €915 per sq m (€65 and €85 per sq ft).
Gavin Butler, associate director at Hamilton Osborne King, says the take-up of industrial space in 2003 was around 300,000 sq m (3,229,170 sq ft). "This helped to significantly reduce the excess supply of space built at the peak of the market in 2001. Demand for units under 500 sq m (5,382 sq ft) remains strong throughout the Dublin area but demand is lower for larger buildings, particularly older units with asbestos roofs and low eaves. Although vacancy rates are lower than this time last year, demand in 2003 remained static for new stock in secondary industrial locations, such as Damastown, and emerging areas in Kildare and Meath."
With demand still weak, developers are offering various "goodies" - like rent-free periods, better finishes and improved specifications - in order to secure tenants. This is in sharp contrast to the height of the boom when many industrial units were being offered on a "shell and core" basis as developers found it difficult to meet booming demand from nearly all sectors of the market.
Gareth McClean, head of industrial at Gunne, says "we are unlikely to witness any notable increase in industrial rents in 2004 other than for new stock in prime locations for which the €120 per sq m (€11 per sq ft) benchmark is likely to be reached by year-end. Capital values, having risen to around €1,507 per sq m (€140 per sq ft) in 2003, are unlikely to experience any significant increase this year, particularly considering the high rate of stamp duty. The high rate of stamp duty will also encourage more and more industrial deals to comprise separate land sale and building agreements - this will boost take-up activity in the market in 2004.
"We expect to see some significant industrial land sales in 2004 although the benchmark price of €1.4 million per hectare is unlikely to be exceeded. Considering economic conditions and the number of pre-sales and pre-lettings occurring in the market at the moment, the prospects for steady growth in the industrial sector are certainly good. But it will be some time before any uplift in activity filters through to provincial markets which will continue to suffer in the short to medium term."
Caleb Kyle at Lisney reports that demand for space from certain sectors of the industrial market is good, like the food and pharmaceutical areas. However, Mr Kyle says other areas that have performed well recently - like retail warehousing, where the Fashion City scheme at Ballymount, west Dublin has proved a runaway success - may have difficulty securing "anchors" in order to get a scheme up and running. "There have been lots of big land sales in 2003 and some small-scale speculative developments," says Mr Kyle, "but there is still some 460,000 sq m (4,951,394 sq ft) of vacant space about. My forecast for 2004 would be steady-as-she-goes for capital and rental levels at current market levels for next year."
Among the many large units still available are the Gateway, Saronix and Solectron facilities at Clonshaugh Industrial Estate in north Dublin. The Fujitsu and Sanmina buildings at Blanchardstown Industrial Park, totalling in excess of 20,000 sq m (215,278 sq ft) are also vacant, having been on the market for over 12 months - it is also rumoured that a large 44,315 sq m (477,000 sq ft) industrial unit in the Blanchardstown area will hit the market early next year.
There were a number of big deals during the year. In one of the largest industrial pre-letting deals for some time, Bridgestone Ireland leased a 7,000 sq m (75,347 sq ft) distribution building at Fingal Bay Business Park near Balbriggan, Co Dublin. The company will be paying around €94 per sq m (€8.73 per sq ft) for the first building in the park while the 20-year lease has a break option in the tenth year. The business park, a joint venture between Howard Holdings and Fingal County Council, could eventually cover 200 acres. The first 30 acres will comprise a business park with own-door office units and light industrial units.
The Irish Chocolate Company acquired a 7,042 sq m (75,800 sq ft) facility on 3.4 hectacres in Clonshaugh Industrial Estate for €5.1 million. In September, 67 hectares of land near the Clonee Interchange in Clonee, Co Meath made over €20 million while 2.14 hectacres at the Naas Road/M50 junction in Dublin 12 made €7.5 million in October.
Green Property Company decided to sell off a lot of industrial units earlier in the year. The company put a large distribution facility near Blanchardstown in Dublin 15 - the largest industrial investment to reach the market for many years - on the market for €38 million. Purpose-built in 1998 and let to Irish Express Cargo, the distribution center at Rosemount Business Park has a floor area of 24,772 sq m (266,643 sq ft). However, in a sign of how difficult market conditions are for larger units, it is still on the market, although Harrington Bannon says it is in discussions with one party.
