Industrial Market 2022

The third quarter of 2022 saw record take-up, representing almost half of year-to-date (YTD) transactions and as of November, the industrial and logistics property market has already exceeded the five-year average in terms of total take-up.

Notably, pre-lettings account for half of Ireland’s 2022 market take-up, totalling almost 1.3 million square feet across 14 buildings. One of the most prominent pre-lettings was Maersk’s acquisition of over 250,000 square feet at IPUT’s Quantum Distribution Park - this included two buildings: a 178,000 square foot unit and a 74,000 square foot timber-framed unit.

Other significant transactions include the sale of Contrail House in Rohan’s, and the sale of Dublin Airport Logistics Park to the integrated courier and clinical packaging business, Yourway. Ireland’s strength in the field of biopharma was one of the key reasons Yourway chose Dublin for its flagship depot. At approximately €250 per square foot, the transaction was one of the highest prices paid for a vacant logistics facility in recent times.

The industrial and engineering sectors continued to perform strongly, accounting for approximately 20pc of take-up this year. This take-up was fuelled by a demand which was primarily driven by data centres and the servicing of multinational occupiers, such as Intel.

E-commerce continues to be a growing area and notably MH Star, a Chinese e-commerce company, acquired an 88,000 square foot unit in southwest Dublin earlier this year. Parcel and courier companies are also continuing to invest heavily in the sector, with GLS recently signing an agreement for lease of a new build near Dublin Airport. Fastway Couriers has also recently acquired a second facility in southwest Dublin which extends to approximately 80,000 square feet.

Based on the high number of reserved units (primarily units under construction), we anticipate a strong finish to 2022.  The average deal size has been continually trending larger, which aligns globally as occupiers seek to maximise efficiency through larger footprints.

Rental Growth

The obvious shift from the traditional ownership of industrial assets from owner occupiers and smaller investors to much larger investment funds is now beginning to become increasingly apparent from a rental growth perspective.  These relatively new entrants are very focussed on optimising their rental income across their portfolios through strategic asset management.

Certain secondary stock continues to outperform prime rental levels due to the shortages of available stock, with several transactions set to conclude at levels of approximately €14 to €15 per square foot - albeit for units typically between 4,000 to 10,000 square feet.  The highest guide rents for new stock are currently A5B North City and 2A South West Business Park, which both extend to approximately 20,000 square feet and are guiding at €12.95 per square foot and €14.95 per square foot respectively.  The revised guide rents reflect the added construction cost of building these relatively smaller units along with the added Environmental and Social Governance (ESG) credentials they offer occupiers.

Outlook 2023

We are currently recording active demand of approximately 8 million square feet across all size categories in the sector - which equates to an average enquiry size of approximately 35,000 square feet. Much of this demand in 2023 will go unfulfilled given the lack of available options. Coupled with this, there has been a focus, in recent times, for developers to build units greater than 40,000 square feet, with limited builds of this size currently underway. There has been no development of smaller units under 20,000 square feet in this cycle - although there are now signs that certain developers will start to target this underserviced size as rental growth makes the units more economic to construct.  

We have yet to witness the return of stock to the market which typically would occur when occupiers take new facilities. This is no doubt due to new increased stock holding for supply chain security, given the recent uncertainty but, undoubtedly, stock will begin to return to the market in the short- to medium-term. 

Several very large build-to-suit requirements are likely to progress through the course of 2023 such as An Post’s 500,000 square foot new distribution hub. With many builds to suit requirements between 100,000 to 200,000 square feet already in active negotiations with respective developers, we expect these to advance in early 2023.

Further prime rental growth is forecasted through the course of 2023, driven by the supply and demand imbalance, along with significant build cost inflation - which is now showing signs of plateauing.

The continued increase in professional investor ownership is set to continue with many of the funds now becoming increasingly active having paused activity due to recent debt costs hikes. We also expect to see a continued investment focus on ESG to include further timber frame (Glulam) construction and upgrading of existing portfolios.

Overall, we remain very optimistic for the industrial and logistics market for 2023 and believe it is well placed to manage the various economic headwinds.

Jarlath Lynn is Director of Industrial & Logistics at Savills Ireland