Property Times Irish Industrial Market Q1 2013 Strong opening quarter hh
24 April 2013 Contents Transaction activity
2
Availability
3
Galway industrial market
5
Cork industrial market
5
Limerick industrial market
6
Summary
7
Authors Siobhán Moloney Economist + 353 1 237 6317 siobhan.moloney@dtz.ie Tanya Duffy
The Dublin Industrial centre continued to witness strong activity in the opening quarter of 2013, following strong performance in the latter part of 2012. Akin to the Dublin market, other regional centres appear to have turned a corner with strong performance recorded in the three month period. That said, quarterly fluctuations remain a feature of the market place With the exception of the Galway market, supply levels remain elevated across the regional centres with corresponding vacancy rates at historically high levels. Despite excess supply in the market, there is evidence of an emerging shortage of larger floor plates in all regional centres A review of the opening quarter reveals that the most significant transaction occurred in the Dublin region with a short term letting of approximately 14,600 sq m to Ace Express in Finglas. In the Limerick region, approximately 4,150 sq m was acquired by Maidenform Brands International Ltd in the Shannon Free Zone. In addition to this, a further 2,750 sq m was occupied in the Cork market by DHL, absorbing three units at a rent of €54 per sq m The financial climate continues to hinder speculative development with no development expected to take place in 2013
Research Assistant + 353 1 237 6352 tanya.duffy@sherryfitz.ie
Contacts Marian Finnegan Chief Economist
Table 1
Irish Commercial Markets - Key figures
+ 353 1 237 6300 marian.finnegan@dtz.ie
Industrial Market
Dublin
Galway
Cork
Limerick
Market Stock (Sq M)
4.058m
463,900
1,037,050
923,100
Head of CEMEA Research
Take Up (Sq M)
70,500
1,300
8,600
8,600
+33 (0)1 49 64 49 54
Availability (Sq M)
1,119,400
58,850
249,050
252,500
Vacancy Rate
27.6%
12.7%
17.7%
27.4%
Under Construction (Sq M)
0
0
0
0
Magali Marton
magali.marton@dtz.com
Source: DTZ Sherry FitzGerald Research
DTZ Research
Irish Industrial Market Q1 2013 Transaction activity The opening quarter of 2013 witnessed the strongest quarterly level of industrial transaction activity recorded since the third quarter of 2008. A total of 70,500 sq m was transacted during the three month period. The overall picture shows that while the industrial market continued to grow at a strong pace, performance within the market has been uneven. On one hand occupation levels continue to thrive however upward pressure on vacancy levels continues. The Dublin industrial market turned a corner during 2012 with a notable improvement in activity levels during the year. This pattern of activity continued in the opening quarter of 2013 with transaction activity rising significantly during the three month period. Aggregate take up stood at 70,500 sq m at the end of March, almost double the level of activity recorded during the previous quarter. For the first time since the downturn quarterly take up is in line with the ten year average.
Nagel both in Furry Business Park, Santry, Dublin 9. DB Schenker also agreed a letting of 3,500 sq m in Northern Cross Business Park. Quarter one saw a number of sales, albeit smaller in size, which included a unit measuring approximately 4,700 sq m at Bannow Road, Cabra and Unit 3 in the Northwest Business Park measuring just over 3,000 sq m. There were also a number of significant sales outside of Dublin including the sale of the former Image Shower unit in Purcells Inch Business Park in Kilkenny measuring approximately 6,700 sq m and the former Talk Talk call centre in units 1D, 2 and 3 at the IDA Industrial Park, Waterford. Figure 2
Dublin industrial take-up, sq m 250 000 200 000 150 000
Figure 1
100 000
Take up in the Irish industrial market, sq m 2 000 000
50 000 -
1 500 000
1 000 000 Source: DTZ Sherry FitzGerald Research
500 000 -
Cork
Galway
Limerick
Dublin
Source: DTZ Sherry FitzGerald Research
The opening quarter also saw a notable increase in the volume of deals transacted, rising by 25% when compared to the corresponding quarter in 2012. Furthermore, an analysis of the space transacted reveals uplift in demand for medium sized units. In particular, the average deal size stood at approximately 2,000 sq m in quarter one of 2013 compared to 1,100 sq m in the corresponding quarter in 2012. However, transaction activity during quarter one was boosted by a large short term letting of approximately 14,600 sq m to Ace Express at the former Amcor facility at Jamestown Road in Finglas. Other notable lettings during the quarter included the letting to Nightline of a facility measuring approximately 4,100 sq m and approximately 3,900 sq m to Kuehne &
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An analysis of the profile of tenants that occupied space during the opening three months of the year reveals that demand remains dominated by logistics companies; in particular, third-party logistics providers. A number of high profile 3PL companies such as Kuehne & Nagel, Nightline and Ace Express were active in the market during quarter one. Active demand during the opening quarter remained strong for modern accommodation; Grade A accommodation accounted for 23% of the total space transacted the three month period. Moreover, 70% of activity during the quarter comprised Grade B space. This trend is anticipated to continue into 2013 as almost half of the overall available stock comprises Grade B accommodation. The remaining space, 7%, comprised Grade C space. With 2013 under way, leasehold transactions continue to dominate activity; that said the appetite for freehold purchases as an occupational preference has steadily improved over the course of the last year. Leasehold transactions in quarter one of 2013 accounted for
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Irish Industrial Market Q1 2013 approximately 77% of activity during the three month period. The remaining 23% comprised sales with owner occupiers dominating activity. The level of enquiries for sales has improved as industrial occupiers are beginning to see real value in the market. The proportion of sales are anticipated to increase throughout the year, however, a lack of available finance continues to hamper growth. The South West industrial corridor remains the most sought after region, accounting for approximately 48% of all transacted space during quarter one. This was followed by the North West region which accounted for 47% of all the newly occupied space. A further 3% of space was absorbed in the North East, with the remaining space transacted in the South East. Evidence of rent stabilisation emerged during 2012, this continued in 2013 with prime headline rents for grade A space remaining stable at €55 per sq m. Local competition arising from a large stock of available space had maintained flat rents across the main industrial corridors. There are tentative signs of upward pressure on rents in certain pockets and consequently 2013 could see upward pressure on rents to €60 per sq m. From the peak of the market, prime quoting rents have declined by 60+%. While the negotiation power remains largely with the tenant, there are signs that landlords are not as flexible as before; particularly in the case of grade A accommodation over 2,000 sq m. The market has moved away from leases being backed by strong incentives to a position where landlords are reducing rents from lease commencement with a small element of rent free provided as a token gesture.
“With the majority of demand being driven by pharmaceutical companies and third party logistics providers, a number of older buildings have been taken up by default as a lack of good quality buildings remain on the market. As a result, 2013 is likely to see further erosion in the number of Grade A available buildings with a continued hardening of rents”. Brendan Smyth, Head of Industrial, DTZ Sherry FitzGerald.
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Availability Despite a significant uplift in occupier demand during quarter one, the quantum of space available in the Dublin industrial market remains high and volatile. Supply levels in the industrial market remain fragmented with a shortage of larger Grade A prime space and an excess of smaller secondary units. At the end of March, the quantity of available space rose to 1,119,400 sq m with a corresponding vacancy rate of 27.6%. Supply levels are expected to remain at historically high levels with further fluctuations expected in 2013 arising from potential receivership sales. Following quarterly fluctuations in supply throughout the course of 2012, a similar pattern of activity was evident during the opening quarter of 2013. The total quantity of available space rose to 1,119,400 sq m at the end of quarter one, as a high level of second hand space released to the market outweighed the robust level of demand witnessed during the three month period. A comparison with the corresponding period in 2012 reveals a 6% increase in supply levels. The rate of increase in supply largely stems from a notable increase in the quantity of units being released back to the market during the three month period. While strong demand would normally result in positive net absorption, the opening quarter of 2013 saw net take up remain in negative territory at -60,000 sq m. Anecdotal evidence would suggest that many occupiers who took out leases at the height of the market in 2007/2008 are approaching five year break options/lease expiries which is potentially resulting in this “chess-board” like movement as they exercise break options. 2013 could therefore witness continued volatility in the level of available space on the market. In line with the increase in supply witnessed during the opening quarter of the year, the vacancy rate also experienced upward pressure rising to 27.6% at the end of March. This compares to 26.1% recorded during the corresponding period in 2012. The current vacancy rate remains stubbornly high when compared to an average vacancy rate of 10.5% in 2007, when activity in the market was at its healthiest. Surprisingly, despite the supply of industrial space in excess of 1 million sq m, there is a limited stock of large good quality vacant buildings. As a result, occupiers are facing limited options. An analysis of the grading of accommodation reveals that Grade A space accounts for 32% of the available space. That said, almost 40% of this
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Irish Industrial Market Q1 2013 space comprises small units measuring less than 500 sq m. The availability of existing Grade A stock that is greater than 10,000 sq m is diminishing with just 8 units available to satisfy an increasing number of requirements in the market. On the contrary, the stock of Grade B space is abundant accounting for 47% of supply. Notably, a significant proportion of the vacant space, 21%, is older stock which is effectively obsolete. In a normal functioning market this space would be redeveloped. However, limited access to finance will result in this space remaining on the market. This stock is arguably masking the true vacancy rate in the market and when the Grade C space is omitted from the analysis, the vacancy rate falls to 21%.
Figure 3
Table 2
Source: DTZ Sherry FitzGerald Research
Availability by grade
Development activity in the Dublin industrial market remains stagnant with no space currently under construction. The financial climate continues to hinder speculative development with no development expected to take place in 2013. Furthermore, the appetite for new development has been impacted by the current low and extremely competitive rental levels which have impacted the viability of design and build options.
Grade
Availability (Sq m)
%
Grade A
360,300
32%
Grade B
527,000
47%
Grade C
232,100
21%
Total
1,119,400
100%
Dublin industrial availability and vacancy rate 1 200 000
30%
1 000 000
25%
800 000
20%
600 000
15%
400 000
10%
200 000
5%
-
0%
Availability
Vacancy Rate
Source: DTZ Sherry FitzGerald Research
In terms of the age profile of available space, 24% is less than 5.5 metres in height while a further 23% ranges between 5.5 and 6.1 metres in height with low eaves. This would further suggest that much of the available space comprises older stock and as a result may not meet occupier requirements. That said, factors such as location and access to power continue to be instrumental in the decision making process. The South West region continues to account for the highest proportion of available industrial space with approximately 540,300 sq m or 48% of overall availability located in this region. However, while this region continues to benefit from stronger demand, the rate of second hand stock entering the market in this region remains high. A further 28% of accommodation is located in the North West, while the North East accounts for 21%. The remaining space is available in the South East, where supply remains limited.
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Irish Industrial Market Q1 2013 Galway industrial market The total quantity of accommodation transacted in the Galway Industrial Market in the year to quarter one rose to 7,450 sq m, representing a significant increase in activity when compared to levels witnessed twelve months previous to this; 3,500 sq m. All transactions occurred in the North East region, not surprisingly, as the preference remains for accommodation in the outskirts of the city due to the benefits of good road networks. Notably, the profile of tenants remains primarily local owner occupiers. That said activity in the opening quarter was subdued with only 1,300 sq m taken up, when compared to the closing quarter of 2012. The volume of take up was higher than levels achieved in the same period last year, however just one deal transacted during the first three months of 2013. The total 1,300 sq m was let in the Ballybane Industrial estate. The unit is believed to have been let on a short term basis at a relatively low rent as a result of the quality of the accommodation. Rents being achieved for better quality industrial accommodation continue to be in the range of €43 - €48 per sq m. However, poorer quality stock is achieving rents in the region of €16 - €22 per sq m.
Figure 4
Galway industrial market: availability by eaves height, Q1 2013 9.1 + m. 3% 7.6 - 9.1 m. 48%
4.3 - 5.5 m. 7% 6.1 - 7.6 m. 18%
58,850
5.5 - 6.1 m. 24%
Source: DTZ Sherry FitzGerald Research
At the end of March, total available accommodation stood at 58,850 sq m. This represents a 2% reduction on availability levels recorded in the same period of 2012 and is unchanged from the previous quarter. The first three months of the year saw a reduction in the volume of second hand space being released to the market which was behind the stability in availability levels witnessed in the quarter.
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Furthermore, it is worth noting that only one available building measures over 10,000 sq m; indicating the shortage of accommodation with larger floor plates. Moreover, 79% of available accommodation measures less than 5,000 sq m. The North East Region absorbs 98% of vacant accommodation while the North West accounts for 2%. The vacancy rate stood at 12.7% at the end of the three month period which represents a marginal reduction from 12.9% recorded twelve months previously. The vacancy rate for the Galway industrial market remains the lowest of the regional industrial centres. That said, disparities exist within the regions and higher vacancy rates are recorded for older industrial parks such as Ballybane and Mervue.
Cork industrial market The Cork industrial market continued to witness strong market activity in the opening quarter of 2013, following robust annual levels of take up in 2012. On a quarterly basis, transaction levels increased by 5% to stand at 8,600 sq m. Activity also strengthened significantly on an annual basis. Furthermore, the quantum of individual deals transacting continues to rise as a result of stronger demand. Seventeen occupations occurred in the three month period to March, totalling take up levels of 8,600 sq m. Approximately 2,750 sq m was acquired over three units on a twelve month lease. The space was taken up by DHL in Westgate Business Park, Lehenaghmore at a rent of €54 per sq m. A unit in South Ring West Business Park measuring 500 sq m was leased on a short term basis to a spinoff company of ‘Gallagher Fencing’. Furthermore, approximately 335 sq m was sold at €355 per sq m in 33 Eastgate Drive, Little Island; absorbing two floors. In addition, demand for small to medium sized units continues to dominate the market. With regards to transaction levels on a twelve month basis, strong take up levels of 35,450 sq m were recorded. This is a significant improvement on the level recorded in the comparable period last year when annual take up measured just 13,100 sq m. An analysis of transacted space over the past twelve months has revealed that 95% of all completed transactions comprised lettings; indicating that leasehold transactions remain the occupier preference.
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Irish Industrial Market Q1 2013 A breakdown of the demand for industrial space reveals that the South West remains the most sought after region as it accounts for 53% of all space transacted in the twelve month period. This was followed closely by the North East which absorbed a further 26% of the space. The remaining space was transacted in the South East, North West and the City Centre with 11%, 6% and 3% respectively. Availability levels in the Cork industrial market continued to rise in the opening quarter; now standing at 249,050 sq m. This represents a 5% increase on a quarterly basis and a substantial 12% increase when compared with the same period in 2012. The apparent upward trajectory in supply levels has become a notable element of the market. Furthermore, the rate at which second hand space is being released to the market outweighs stronger demand levels. That said, just 3% of available accommodation measures over 5,000 sq m; highlighting the lack or larger floor plates available to potential occupiers. An examination of the vacancy rate further highlights the raised supply levels. The vacancy rate for the market at the end of March stood at 17.7%, which was broadly unchanged from the level recorded in the closing quarter of 2012. However, this increased quite substantially from a rate of 16% when compared with the corresponding period in 2012.
Limerick industrial market Activity in the Limerick industrial market strengthened considerably at the end of 2012 and this development continued into the first quarter of 2013 with significant take up levels of 8,600 sq m transacting. This represents a substantial increase from levels of 1,900 sq m in the comparable period of 2012, indicating increased demand in the market. Take up levels were largely boosted by the occupation of 4,150 sq m in the Shannon Free Zone to Maidenform Brands International Ltd. A further 550 sq m in the Shannon Free Zone was let to IDEX Pump Technologies (Irl) Ltd, while 550 sq m was let on the Dock Road, Riverside Park at €27 per sq m. An increased amount of sales were witnessed in the three month period. The most sizeable of the sales was the sale of 1,900 sq m in Tara House, Annacotty. This space was sold for €450,000 to the OPW. Furthermore, 250 sq m was sold in Eastlink, Ballysimon Road for approximately €90,000. Transaction activity on a twelve month basis saw a very significant increase from 22,400 sq m last year to 47,500 sq m at the end of March; this is due to increased activity over the latter part of 2012. Furthermore the volume and size of transactions have increased over the period.
Figure 5
Cork Industrial Market: Availability by Eaves Height, Q1 2013 < 4.3 m. 1%
9.1 + m. 4% 7.6 - 9.1 m. 6%
6.1 - 7.6 m. 47%
4.3 - 5.5 m. 12% 249,050
72% of all transactions comprised lettings, while 28% comprised sales over the twelve month period. Increased demand from owner occupiers is evident at present, with many of these expanding. Demand remains strongest in the North East, accounting for 39% of all acquired space during the twelve month period. This stems from the popularity of the Ballysimon Road; due to its connectivity to the new road network and city centre. A further 35% was absorbed in the Shannon Free Zone. Of the remaining space, the South East and the South West regions accounted for 12% and 13% respectively.
5.5 - 6.1 m. 30% Source: DTZ Sherry FitzGerald Research
In terms of location, the North East region continues to account for the largest proportion of available space, 41%. A further 28% is located in the South West region. The South East, North West regions account for 15%, and 9% respectively, while the remaining space was located in the city centre.
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Irish Industrial Market Q1 2013 Figure 6
Summary
Limerick industrial market, available stock by eaves height, Q1 2013
2013 saw a positive start with strong performance, building on the momentum witnessed during the latter part of 2012. In particular, the Dublin centre saw a boost in the volume of individual deals transacting. This trend was evident to a lesser extent in the other regional markets. Furthermore, mixed performance remains a key element of the regional industrial centres, given the diverse profile of the markets.
< 4.3 m. 1%
6.1 - 7.6 m. 39%
9.1 + m. 7%
252, 500
5.5 - 6.1 m. 12%
4.3 - 5.5 m. 16%
7.6 - 9.1 m. 25% Source: DTZ Sherry FitzGerald Research
The total quantity of available space in the Limerick market remains largely unchanged from the previous quarter; standing at 252,500 sq m. Strong demand in the quarter was on par with the quantity of second hand space coming onto the market. However, a comparison with the same period in 2012 reveals a 7% decrease in available accommodation. A large proportion of the available stock in all regions is dated and in need of significant work and modernisation. In the Shannon Free Zone, some of the older industrial stock has been converted into office accommodation. This, to date, has not been the case in the other regions.
The quantum of space available on the market remains high and volatile which stems from on-going fluctuations in the rate of release of second hand space to the market. An upward trajectory in supply continued in the Dublin and Cork centres, despite strong demand during the opening quarter. Supply levels remained relatively stable across the Galway and Limerick centres. The market could potentially see supply levels fluctuate due to on-going instances of consolidation activity, closures and receivership sales. The development pipeline is limited at present with no space currently under construction in any of the regional centres. Furthermore, the appetite for new development has been impacted by the current low and extremely competitive rental levels which have impacted the viability of design and build options.
The South West region accounted for approximately 37% of the space currently available in Limerick. The Shannon Free Zone and North East account for a further 25% and 19% respectively. A further 12% is available in the South East with the remaining space located in the North West. The overall market vacancy rate remained broadly unchanged now standing at 27.4% at the end of March. This represents a 2% decrease from 29.4% in the corresponding period of 2012.
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DTZ Research Contacts Research
Research
Marian Finnegan
SiobhĂĄn Moloney
Phone: + 353 1 2376 300 Email: marian.finnegan@dtz.ie
Phone: + 353 1 2376 317 Email: siobhan.moloney@dtz.ie
Research
Research
Tanya Duffy
Magali Marton
Phone: + 353 1 2376 352 Email: tanya.duffy@dtz.ie
Phone: +33 (0)1 49 64 49 54 Email: magali.marton@dtz.com
DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. Š DTZ April 2013
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