Analysing the performance of the 2023 Dublin industrial and logistics property market, some of the findings are counterintuitive. Rents rose but prices fell; supply increased but take-up decreased; and yet the vacancy rate barely changed, remaining below 2 per cent. How could this be?
Over the past 12 months, rents grew by 11 per cent to €13 per sq ft, mainly due to the supply/demand imbalance. Other factors played a part such as higher building specifications, increased funding and building costs and softer investment yields. The lower pricing was primarily influenced by higher interest rates rather than any sector fundamentals.
On the supply side, developers delivered 2.25 million sq ft of new industrial and logistics space during the year, a 12.5 per cent increase year-on-year. Much of this space was pre-let in 2022, resulting in a shortage of available options for occupiers during 2023. This helps to explain how take-up fell by almost 30 per cent to 3 million sq ft in 2023.
The largest transaction in Dublin was the letting by Palm Capital of 287,000sq ft in Greenogue Logistics Park to logistics company Wincanton, for Ikea’s main distribution hub. PRL leased 240,000sq ft in Aerodrome Business Park from EQT Exeter, Richmond Marketing pre-let 128,000sq ft from Sandymark in Citywest and Rhenus Logistics pre-purchased a 120,000sq ft unit in Northwest Logistics Park from Park Developments. Outside Dublin, Smyth’s Toys surprised many by constructing a 400,000sq ft distribution warehouse in Dundalk North Business Park.
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Notwithstanding healthy occupier inquiry levels, companies are taking longer to make decisions. This is partly due to the slowdown in consumer and export growth after the post-pandemic surge. But occupiers are also reporting serious difficulties in sourcing the size and quality of accommodation that they need.
In 2023, higher funding and construction costs gave developers pause for thought, leading to a dramatic slowdown in speculative development with only nine new building commencements
Industrial developers can adjust quickly to market conditions due to their typical construction timescale of 12 months. In 2023, higher funding and construction costs gave developers pause for thought, leading to a dramatic slowdown in speculative development with only nine new building commencements. We predict that completions will fall to less than 1.2 million sq ft in 2024, which will certainly impact take-up due to a lack of suitable options for occupiers. This will lead more occupiers to consider pre-contracting with developers on a build-to-suit basis.
The industrial and logistics property sector continues to attract new investors despite economic challenges. In contrast to sectors experiencing a steep decline in investment throughout the year, projected investment volumes in the industrial and logistics sector for 2023 are estimated at around €530 million. This matches the 2022 figure which was the second-highest on record. However, 60 per cent of this total stems from two mega-deals.
In November 2023, Mountpark finalised the €225 million sale of a five-building portfolio in Baldonnell Business Park, covering 1.4 million sq ft. Pontegadea, linked to Zara’s owner Amancio Ortega, acquired the portfolio. This includes Amazon’s 630,000 sq ft e-fulfilment centre for Ireland. While the net initial yield is reported to be just under 5 per cent, some of the rents are below prevailing market levels.
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Earlier in the year, Palm Capital and KKR divested their three buildings in Greenogue Logistics Park totalling 450,000sq ft to Ingka Investments, a group company of Ikea, at an estimated value of €100 million. Other notable transactions include the forward-funding of the new Sandymark logistics development at 4065 Kingswood Road, Citywest, at a price believed to be in the early €30 million range; the sale and leaseback of Unit 2 Vantage Business Park for €13 million; and an off-market portfolio sale in north Dublin for €41 million.
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Notably, for both Pontegadea and Ingka, it marked their inaugural venture into the Irish industrial investment market. Agents indicate an increase in inquiries from first-time investors, noting a rising confidence on foot of the European Central Bank interest rate pause in September and a slowing of inflation. Currently, the prime industrial yield has reached 5 per cent, contrasting with its peak of 4 per cent in 2021.
Kevin McHugh is a director of industrial property specialists Harvey
