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Savills World Research Ireland Industrial Market in Minutes Dublin Industrial Market Industrial Property Take-Up 160,000 140,000 120,000 100,000 80,000 60,000 40,000 There are perhaps two more convincing explanations for the year-on-year decline in industrial take up. Firstly the Q3 2016 take-up figure is being compared with an exceptional Q3 2015 when 141,000 sq m of industrial space was let or sold – a record for the Dublin market. In fact, although it is almost 40,000 sq m down on Q3 last year, this year’s Q3 take-up remains among Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 FIGURE 2 Monthly Goods Trade Volumes between the UK and Ireland (3 month moving average) 1,700 1,600 1,500 €m 1,400 1,300 1,200 1,100 Source: CSO Irish Imports from UK Aug-16 Jun-16 Apr-16 Feb-16 Dec-15 Oct-15 Aug-15 Jun-15 Apr-15 Feb-15 Dec-14 Oct-14 Aug-14 Jun-14 Apr-14 Feb-14 Oct-13 Dec-13 Aug-13 Apr-13 Feb-13 Oct-12 Jun-13 Brexit Dec-12 1,000 Aug-12 Gross take-up of industrial property in Q3 was just shy of 102,000 sq m. This represents a year-on-year decline of around 28 percent and brings total take-up for the first nine months of 2016 to over 221,000 sq m. Some commentators have attributed this to a sharp post-Brexit fall in the value of Sterling which should, in theory, create a headwind for Irish exports. We are not entirely convinced by this argument. Firstly, as shown in Figure 2, goods exports from Ireland to the UK have actually risen since Brexit despite the currency swing. In the longer term we agree that weak Sterling is likely to drag on exports to the UK, and this may impact negatively on the demand for manufacturing and logistics space. However the same logic dictates that weak Sterling should have a positive effect on imports from Britain. Therefore it should boost the demand for logistics space to warehouse incoming goods. Given that Ireland’s merchandise imports from the UK exceed our exports to that market, the long-run impact of the currency shift could be a net positive for logistics demand. Q2 2013 Long-Run Avg Source: Savills Research Market Activity Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 0 Q4 2010 20,000 Q3 2010 Ireland’s economy has continued to outperform since our last report. Employment is now rising by 2.9 percent per annum – the third fastest growth rate in the EU. This has contributed to increased earnings which, along with modest tax cuts over three successive Budgets and a resurgence in consumer credit, has fuelled the demand for goods. The flow of goods through the Irish economy therefore continues to increase. After a record year in 2015, Dublin Port has registered even stronger activity in 2016, with cargo volumes up 6.8% in the opening nine months. This has had a knock-on impact throughout the supply chain. Logistics firms continue to expand their fleets, with vehicle registrations up 24% in the year to Q3, while the demand for warehousing space continues to rise. FIGURE 1 Sq. M. Introduction Q3 2016 Irish exports to UK the strongest in the current economic cycle and is 62 percent higher than the long run average. A second factor behind the slowdown compared with last year is simply the challenge that occupiers face in finding good quality industrial space in an ever-tightening market. savills.ie/research 01 Market in Minutes | Dublin Industrial Market Rents and Yields With the availability of good quality stock diminishing, prime industrial rents are growing strongly. According to MSCI’s ERV index, rents increased by 9.2% in the year to September and we believe headline rates now stand at approximately €85 per sq m per annum. Prime industrial yields have compressed by 90 basis points over the past twelve months and are currently in the region of 6.8%. As a result capital growth continues to outpace rental growth and values have risen by 12.6% over the same period. OUTLOOK There is now a general scarcity of good quality units across the greater Dublin area, with obsolescence an issue for a significant proportion of the remaining available stock. Although most occupiers would prefer to buy rather than rent, the yield profile of existing units and the fact that properties bought between 2011 and 2014 must be held for seven years to avail of the Capital Gains Tax waiver, means that the number of units coming up for sale is limited. This is compounded by the fact that construction of new industrial property has only just resumed with Rohan Holdings and Green REIT leading the way with developments at Dublin Airport Logistics Park and Horizon Logistics Park respectively. With capital values rising strongly, however, further speculative development and the delivery of new space will be a key feature of the market in 2017, particularly in north Dublin. However, with prime values still below replacement costs, the potential for further capital and rental growth in a tightening market remains in place. Savills Industrial Please contact us for further information Gavin Butler Director, Industrial, Savills Ireland +353 (0)1 618 1340 [email protected] John McCartney Director of Research, Savills Ireland +353 (0)1 618 1427 [email protected] Stephen Mellon Negotiator, Industrial, Savills Ireland +353 (0)1 618 1366 [email protected] Sean O’Malley Economist, Research, Savills Ireland +353 (0)1 618 1478 [email protected] Niall Woods Negotiator, Industrial, Savills Ireland +353 (0)1 618 1725 [email protected] Elaine Gordon PA & Team Administrator, Industrial +353 (0) 1 618 1313 [email protected] Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 180 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. A unique combination of sector knowledge and entrepreneurial flair give clients access to real estate expertise of the highest calibre. We are regarded as an innovative-thinking organisation backed up with excellent negotiating skills. Savills chooses to focus on a defined set of clients, therefore offering a premium service to organisations with whom we share a common goal. Savills takes a longterm view to real estate and works hard to invest in long term and strategic relationships and is synonymous with a high quality service offering and a premium brand.This bulletin is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. All references to space and floor areas are approximate and apply to the Dublin area. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. (c) Savills Ltd 2016. Savills plc TT 02