Industrial property values and rents are set to continue rising next year, as the buoyant economy and limited supply combine to ensure strong demand, according to agents. Overall, 1998 has proven to be a record year for industrial land prices, sales and leases. Much of it has been fuelled by Irish companies seeking warehousing space, near the M50 motorway network.

New industrial buildings are selling for between £75 and £100 per sq ft for prime units depending on the quality of location, according to Paul McNeive, of Hamilton Osborne King. He and other agents say rental values for new buildings are currently £6.50 to £7.50 per sq ft.

Prime new industrial buildings are fetching up to £80 per sq ft or slightly more, depending on location. The upward movement in new industrial building prices has also boosted values in the second-hand market. Agents say the average price for a second-hand building is £55 to £60 per sq ft, whereas one year ago, the level would have been £45 to £50 per sq ft.

A lot of good second-hand properties are going to auction and tender because of the strong market, according to Caleb Kyle, of Lisney. Previously, he says, these properties would simply have changed hands through private treaty sales.

Prices for industrial zoned land are also rising, especially in key areas. Mr McNeive says good land, suitably serviced, is making £400,000 to £450,000 per acre around the Naas Road, representing a virtual doubling of land prices within a year.

By the end of this year, around 3.25 to 3.5 million sq ft of industrial property will have been taken up, according to Sean O'Neill of Lambert Smith Hampton. He says this is well above figures for previous years.

" Most of what is being built at present is design and build; a lot of developers do not have to build speculatively and this is keeping the supply fairly tight," he says. "If a client needed space within a month, we would find it difficult to get that space." He acknowledges that developers are building smaller 2,000 to 5,000 sq ft units speculatively, but not on a larger scale. "It is a mixture of caution and not having to build speculatively."

Mr O'Neill says that in 1990 and 1991, many industrial units were being built speculatively. Then the recession hit and developers were left sitting on properties. Events like this did not occur so long ago, and developers remain cautious.

Figures to the end of the third quarter, compiled by Mr O'Neill, show that of the property transactions carried out in Dublin, 69 per cent were purchase deals, the remainder being lease deals. This, he says, is because of low interest rates. "You can borrow money and buy buildings cheaper than you can rent them." Much of the demand is being created because retailers are "outsourcing" their distribution operations, and so many distribution companies are in the market for space. "They don't want high-spec buildings, just warehousing space with 10 to 15 per cent office content, " says Mr O'Neill.

However, agents agree that the nature of manufacturing is changing. Increasing demand is now coming from the technological or more hi-tech sectors, from clients who are carrying out research and development, or some form of computer software manufacturing. Their specifications include a higher office content, sometimes as much as 50 per cent. Mr McNeive says top quality industrial buildings are now being demolished in some industrial estates or business parks such as Sandyford, south Dublin, to be replaced by units with higher office contents and greater densities.

"There is intense activity by developers looking for industrial zoned sites which are suitable for office redevelopment on the M50 corridor," he says.

Although often viewed as the unglamorous end of the property investment market, investors have nonetheless begun to turn their attention to the sector.

However, agents say there is not a huge amount of such property around for investment. With interest rates so low, most businesses prefer to purchase the units from developers who carry out the schemes on a design and build basis.

"A lot of developers who leased units to tenants are holding on to them, rather than selling them on, so there is a limited supply of investment opportunities," says Sean O'Neill. "In the past you would often have got the institutions pre-funding developments, but you get a better price from selling them on to owner-occupiers, rather than pre-funding them."

A number of investors are scouring the market for suitable properties, says Mr O'Neill. "They can see a limited supply and fairly decent demand. Initial yields from industrial properties are higher. For example, office investments offer 3 to 5 per cent, whereas industrial property can be 7 to 8 per cent.

Although the move is towards buying rather than renting, agents say those who are prepared to rent can strike a good deal. If a developer wants to retain the property, then they are sometimes prepared to settle for a little less rent than might otherwise be the case. Agents also say that tenants will opt for 20-year leases, but will want 10-year break options.

Traditionally, the Naas Road region of south-west Dublin has always commanded the best prices. Now, say agents, the Ballycoolin/Blanchardstown area is rapidly catching up. It too has good access to the M50.

"Ballycoolin/Blanchardstown is now the most densely populated industrial area after the Naas Road, and has become a major hub for distribution in Dublin," says Paul McNeive. HOK is handling seven units, built on spec, by Park Developments. Three of them are pre-sold. A number of notable sales and lettings have taken place this year. Lambert Smith Hampton has let several properties at Parkwest, including a 20,000 sq ft lease to Dixons at £6 per sq ft, and a sale of 25,000 sq ft to Phoenix Carpets at £60 per sq ft. The same agents also acted in the sale of a 20,000 sq ft industrial property to Doras Distribution at £60 per sq ft.

Nigel Healy of Jones Lang Wootton says his company will be quoting £75 per sq ft at Finglas, where developers are building 220,000 sq ft, comprising 50 units.

HOK acted in several notable deals this year. These included the sale of the former Claris Computers building at Ballyboolin Business Park to Rank Xerox for £5.5 million. It comprised 70,000 sq ft.

There were two interesting deals on the Navan Road, both involving motor dealerships. Motor Distributors Ltd bought 7.7 acres for in excess of £9 million while DG Opel bought the Crest Foods site, comprising 4.5 acres for a figure in excess of £1 million per acre.

Agents believe the industrial sector will remain stable, underpinned by a strong economic performance.

Caleb Kyle believes that the market may have peaked, both in rental and purchase terms. "I think we are entering a period of stability, certainly in the first half of 1999. Demand will continue, but there is plenty of supply there to meet it. "

However, Nigel Healy, sounds a note of caution: "Confidence (in the market) will be tempered by what happens on the economic front. Nobody believes that Ireland can go it alone if there is an economic recession. Confidence is the key, and if it is rocked, demand will be lowered, and then we could have a problem."