Lack of Supply Restricting take-up of Logistics Space in Q1 - Construction Network Ireland - Construction Network Ireland

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Published in Construction on 19/04/2021

Lack of Supply Restricting take-up of Logistics Space in Q1

CNI Editor reports

New research from property advisor, Savills Ireland has revealed that 38,000 sqm of industrial and logistics space was transacted in Dublin during Q1 2021, down 44% on the five-year quarterly average. However, this is not a reflection of reduced demand, rather its due to a lack of space in the market with the vacancy rate standing at an all-time low of 1.2% at the start of Q1. In total, there were 17 transactions, only six of which were sales reflecting the continuing lack of freehold opportunities available on the market.  The Southwest of Dublin accounted for the largest share of take-up accounting for 69% of take-up in Q1.

According to Gavin Butler, Director of Industrial and Logistics in Savills: “The lower-than-normal take-up in Q1 has been severely hampered by a lack of supply. 94% of the speculatively built stock that was brought to the market in 2020 was let prior to completion which is evidence of the current pent-up levels of demand.  Brexit has also increased demand since the beginning of the year as UK based occupiers, whose supply chains into Ireland come through the UK, are looking to establish operations in Ireland to avoid costs and delays getting product through the ports.” 

Looking ahead, we expect take-up for the rest of the year to be strong with 130,000 sqm of space due to be delivered in 2021 across eight developments, 30% of this space is already committed with a further 50% in advanced stages of negotiation. Based on current levels of existing requirements and the continued tailwind for demand for logistics space arising from Brexit, it is anticipated that the majority of this space will be taken up prior to completion.                                    

Interestingly, 91% of all new builds finished since 2016 have been let prior to completion, reflecting the lack of supply of good quality second-hand space coming to the market and the preference amongst occupiers to occupy modern stock despite the higher rents and longer lease terms required by landlords compared with second-hand buildings. 

Analysing the vacant stock, over 35% is 30 years old or more, meaning there is a shortage of good quality buildings that are capable of accommodating efficient distribution platforms for end users. The strong demand and falling vacancy rates are fuelling rental growth and we anticipate prime rents to grow from their current levels of €112 per sq m over the coming months. Strong investor interest for opportunities in the industrial and logistics sector throughout the pandemic saw yields compress from 4.75% in Q1 2020 to now stand at 4.25%.    

According to John Ring, Head of Research in Savills: “The dual forces of the pandemic and Brexit have led to a real shake-up in the industrial market over the last 12 months. These events are catalysts for wide-ranging structural change in the market, changes that will play out in the coming months and years. On the one-hand, Brexit represents logistical challenges for companies doing trade with Great Britain but also for those that use it as a trade channel for the exchange of goods from other countries. On the other hand, the pandemic is shifting more consumers to online channels which will have an enduring impact on the importation, storage and delivery of goods in a timely and efficient fashion. Dublin’s Industrial and Logistics market is poised for an exciting time as these forces play-out.”