The Dublin industrial market continues to experience a period of relatively strong growth with a resultant low vacancy rate, according to our research.
The Dublin industrial market may have been viewed as taking a "back seat" to the strongly performing office market over the past number of years. However, significant changes in the structure of the labour market - combined with the transformation of the traditional warehouse-style market to a modern business park market - has generated an acceleration in demand for industrial accommodation in recent times.
Activity levels in the Dublin market are now very robust, with just less than 5.7 million sq ft of industrial accommodation transacted during last year, while the first three months of 2001 saw a further 968,400 sq ft taken up. Demand for modern units with a larger eaves height is particularly strong, representing over a half of all space taken up during the first quarter of this year.
The acceleration in demand is also clearly visible in an analysis of the principal indicators underpinning the market. At the end of the first quarter of 2001 the quantity of available industrial accommodation stood at 1.4 million sq ft, which is equivalent to a vacancy rate of 4.6 per cent. This current vacancy level represents a significant reduction on recent years when it hovered between 6 per cent and 9 per cent.
Interestingly, an analysis of the available space by eaves height reveals that 54 per cent of all available space has an eaves height of less than six metres, for which demand is very limited. Discounting such accommodation from the overall stock of available space suggests a vacancy rate of only 2 per cent.
As of March 31st, 2001, there was an estimated 3.8 million sq ft of industrial accommodation under construction. This includes a significant proportion of space being developed privately in the south-west by the pharmaceutical company American Home Products/Wyeth Media, which is investing $1 billion to build one of the world's most advanced biotechnology centres.
Interestingly, in excess of 60 per cent of this space is already either pre-let or pre-sold, an indicator of the real strength of demand for modern industrial accommodation.
The south-west region traditionally dominated the industrial market and it is still the principal location for industrial activity. Indeed the strength of construction activity in the region suggests that this will continue in the short term.
However, the increase in demand for office accommodation in the area has negatively impacted upon the quantity of land traded, with developers deciding to hold out for the potentially higher rewards from office development.
In contrast, there is an increase in the quantity of land being traded in the north-west, as large developers have begun to sell sites in an effort to offset rising development costs. This suggests that activity levels in the north-west will increase in the medium term.
Another interesting trend to emerge in the industrial market of late is the factor of increased investor interest. This was particularly notable following the Government intervention in the residential market and has accelerated more recently as a result of the revised treatment of pension mortgages.
The increased investor interest is made clear by the relatively large proportion, 62 per cent, of accommodation that is available only to let.
On the other hand, while the falling interest rate environment has made owner-occupation a much more attractive option for many tenants, the increase in the cost of building, which has had a direct impact on prices, offsets some of the savings that would otherwise have been made.
Rental and capital values in the industrial market have been relatively stable over time; however, there is significant variation in both - reflecting levels of availability in the different regions.
Rental levels for smaller units, of less than 10,000 sq ft, range from £7 to £8 (€9-€10) per sq ft in all regions excluding the south-east, where rental levels remain higher at £9.50 to £10.50 (€12-€13) due to the continued shortage of available space.
Similarly, capital values for larger units in the south-east are relatively higher, with values for units in excess of 10,000 sq ft ranging from £125 to £160 (€158-€203), while those in other regions range from £90 to £99.50 (€114-€126).
The outlook for the future of the industrial market remains very positive, though it will inevitably be somewhat impacted upon by the slowdown in the US economy. The slowdown in the IT/Communications sector has resulted in some companies postponing their expansion plants, which may result in an easing of demand for the larger lot sizes - which would typically have been the domain of the data centre companies.
However, the limited level of speculative development to date, coupled with the low vacancy rate, will continue to underpin the overall stability of the market.
While the performance of the IT/Communications sector is clearly important for the overall performance of the economy - and indeed the commercial property market - it is not the only source of future growth. The chemicals industry, including the pharmaceutical sector, comprised almost 32 per cent of total exports from Ireland in 1999, an indicator of the relative importance of this sector.
Currently, there are more than two hundred overseas pharmaceutical, chemical and healthcare companies in Ireland, employing more than 33,000 people. In Dublin, these companies include Bristol-Myers Squibb and Smith & Nephew. This sector may prove to be an important source of future growth in the Dublin industrial market.
Marian Finnegan is chief economist at DTZ Sherry Fitzgerald
