IPOs And Speculative Development Take Hold In Dublin's Industrial Market
U.S. hedge fund York Capital is planning a €250M initial public offering of a logistics portfolio it has built up over the last few years. It is betting that the industrial sector will perform well over the next few years. It is not alone.
CBRE said at its annual predictions event last week that the industrial and logistics sector is set to outperform every other sector in 2018 with demand for prime locations and rents increasing.
Demand for logisticseli space is high, and speculative development is returning to the market, as developers look to capture the expected uplift in rents. And the demand is such that the locations at which they are developing is expanding beyond traditional industrial heartlands.
“The most desirable locations will not change but we expect to see some new ones added as demand grows,” CBRE Head of Research Marie Hunt said.
The industrial sector performed well in 2017, with almost 2.7M SF taken up in Dublin, with shortage of modern industrial and logistics causing rental growth of 6% in the fourth quarter alone.
“This sector will firmly move into the development phase of the cycle during 2018 with new industrial and logistics facilities due to be delivered and a corresponding uplift in transactional activity anticipated,” Hunt said.
As demand continues to grow in Europe and Ireland for industrial space, it is expected that investors will spread out beyond the most common areas for industrial development, however the area around the N7 will always remain the most attractive according to Hunt.
“Traditionally the industrial heartland was around the N7 and even though all major roads are now being looked at, they will always prefer to stay close to the N7.”
Hunt said that the Naas road, Clondalkin, Ballycoolin, Santry and Swords will also see more industrial development with their close proximity to the M50.
There is also a possibility that industrial developments inside M50 may be closed down and relocated outside the M50.
“Industrial and logistics stock needs decent land and circulation spaces so several older industrial locations close to Dublin’s city centre are likely to be redeveloped for higher value alternative uses such as build-to-rent over the next few years," Hunt said. "We expect new development to be largely concentrated in the northern section of the M50 motorway around Dublin Airport and along the N7 motorway.”
“A number of developers are already breaking ground in speculative developments along the northern section of the M50,” Savills Director of Industrial, Gavin Butler, said.
These include two developments in Dublin Airport Logistics park by Rohan Holdings. The 30K SF unit is almost fully developed and they are about to embark on 50K SF in the same scheme. This will be about 2 kilometres from the M50 on the M2 route. In North City Business Park, Rohan Holdings has a 40K SF unit just off Junction 5 on the M50.
Other developments being speculatively built include a unit in Northwest Business Park by Park Developments, four units by Green REIT at Horizon Logistics Park and a 120K SF development by Mount Park in Baldonnel.
“We are seeing much more speculative development than in recent years, we might see build-to-suit construction but not to any great extent,” Butler said.
Outside of Dublin, appetite for industrial stock will also increase in areas around Galways and Little Island in Cork.
“The midlands could also see decent activity because of its location at the centre of the country. The land and building costs are comparatively lower than Dublin or Cork,” Hunt added.
With higher than ever demand and a shortage of long-term supply, the industrial sector looks well placed for those already invested and new entrants alike.