Logistics demand fuelled by Brexit and €2bn online spend monthly

The twin difficulties of Covid and Brexit may have have given owners of office and high-street retail food for thought over the past two years, but significant opportunities have opened up in the logistics and distribution industry.

There is no doubt there has been a sea-change in demand as much shopping moves online. Latest figures show that people in the Republic spend a staggering €2 billion online every month, while there is growing unease about the supply chain – particularly in the pharma industry.

Delays, additional paperwork and extra costs caused by Brexit, have seen a shift in focus from “just-in-time” deliveries to a focus on security of product.

One of the most prominent moves in this area was the decision by Amazon to create a new 58,529sq m "fulfilment centre" at Baldonnell Business Park, Dublin, to serve customers across the island of Ireland and the rest of Europe.

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The new Baldonnell centre will allow Amazon to bypass the UK and avoid any delays or extra charges due to Brexit rules. It will also handle deliveries for Northern Ireland. With delivery branches in Rathcoole and Ballycoolin in Dublin to remain in place, customers of Amazon in Ireland can expect faster deliveries next year.

Distribution centres

Big operations like Amazon, Primark or Tesco have always seen the benefit of having their own large-scale distribution centres, but there was little business in the speculative supply of distribution centres in the decade since the economic crash, says Cathal Morley, an associate in JLL's industrial agency division.

However, Morley says there has now been a surge of activity in the logistics sector, both domestically and internationally, from institutional funds and private equity. He says the Dublin logistics sector has changed “immeasurably” from the mid-2000s and is now dominated by about seven developers. There has been a trend towards larger units with about 100,000sq ft becoming more commonplace, with even larger units currently under construction or planned for development.

He cites Buildings 1 and 2 at Greenogue Logistics Park, in Rathcoole, Co Dublin, as an example of this trend. Building 2 specifically is the largest speculatively constructed logistics facility seen in the Irish market, extending to some 286,462sq ft and it is available for leasing while construction is still ongoing. JLL is handling it jointly with Savills.

While units of this size or bigger have been constructed previously, they have either been pre-let “design and build” facilities or were developed by owner occupiers.

“Greenogue highlights the confidence in the Irish logistics sector and also how occupational trends have been changing,” says Morley.

Lack of supply

There is still a lack of supply of modern facilities in the 25,000-100,000sq ft size category across the city and supply is slow to come on stream. However, in Horizon Logistics Park, Swords, Co Dublin, Henderson Park has recently commenced a new phase of development of eight units, ranging in size from about 30,000sq ft to 90,000sq ft.

Joan Henry, chief economist and head of research at Knight Frank Ireland, says a shortage of speculative development and record low vacancy rates are creating intense competition for space. Prime rents rose by 9.6 per cent in the past year, while €348 million has already been invested in industrial assets in the Dublin market, in the year to date.

“This equates to an 11 per cent market share – almost three times greater than the annual average of 4 per cent that has been witnessed since 2013,” she says. “Such is the competition for high-quality assets that investors are beginning to forward fund assets.”

Third-party logistics

According to the latest Knight Frank research, Dublin is witnessing strong occupier demand, on the back of global trends in ecommerce and driven by retailers and third-party logistics. Average annual industrial take-up stood at 307,000sq m between 2017 and 2020, while a further 186,000sq m has transacted as of the third quarter of 2021, says Henry.

Currently, most individual assets in Dublin lack the scale required by institutional investors, therefore bundling assets into a portfolio is common to provide them with the required lot size.

So far this year, Savills Investment Management bought the Park Portfolio for €47.9 million, while Exeter Properties purchased Project Star for €34 million. The largest transaction was JP Morgan's purchase of units A and B Mountpark, Baldonnell, for €60 million, which itself formed part of a wider portfolio of European assets. Other notable investors active in the market include BNP Paribas REIM, Kennedy Wilson, Arrow Capital Partners, Palm Capital and M7 Real Estate.