A healthy economic backdrop, favourable supply conditions and the potential for a post-Brexit boost mean that we forecast Dublin industrial rents to keep growing at around 2% p.a. over the coming years.
- A healthy economic backdrop, favourable supply conditions and the potential for a post-Brexit boost mean that we forecast Dublin industrial rents to keep growing at around 2% p.a. over the coming years.
- 2020 proved to be yet another solid year for Dublin’s industrial sector. Indeed, following a notably strong Q4 outturn, total take-up for the year reached 343,716 sqm, up 3% y/y. And according to Savills, with only 26,500 sqm of new space delivered to the market last year, all of which was let, the vacancy rate continued to edge down to an all-time low. In addition, CBRE reported that prime rents grew by 3% y/y.
- We think that market conditions are conducive for prime Dublin industrial rents to continue to grow over the coming years. For a start, with a no-deal now avoided, we think that Brexit could provide a small boost to demand for Irish industrial assets. Agents noted that one of the drivers of take-up in Q4 was firms preparing for Brexit. And with delays at the UK land bridge due to extra red-tape, firms could continue to hold additional stock near ports to safeguard supply chains, further pushing up demand for space.
- Moreover, with transporters already starting to circumvent the land bridge by taking direct routes from Ireland to continental Europe, there could be a need for more industrial space around ports. Indeed, a new shipping route between Dublin and Amsterdam was launched just this week. But while this could boost demand in the short-term, the long-term effects are not quite clear.
- Second, the recovery in the economy should support occupier activity. Following sharp falls last year, domestic demand is set to stay weak while tighter restrictions remain in place until Q2. But further ahead, our forecast for the Irish economy to grow at a decent pace points to occupier demand holding up. (See Chart 1.)
- And finally, supply is likely to remain tight. At 1.8%, Dublin has the lowest industrial vacancy rate in Europe. (See Chart 2.) Lisney report that around 125,000 sqm of space is under construction, with an additional 35,000 sqm with planning permission, but this pipeline is thin, amounting only to roughly two quarters of average take-up. What’s more, while speculative building might increase, Savills note that 91% of new builds since 2016 have been let before completion, suggesting that there is a dearth of modern units. Indeed, currently around 35% of the vacant stock is older than 30 years. Therefore, with occupier demand expected to hold up, any new build is unlikely to be vacant for long.
- Bringing all this together, we expect industrial rents in Dublin to grow by 2% per year over the next few years. While this would be a far cry from its previous five-year average growth rate of 10%, it will still leave it as one of the top rental markets in the euro-zone.
Chart 1: Ireland GDP & Industrial & Logistics Take-Up (4Q MA)
Chart 2: Industrial Vacancy Rates (Q3 2020, %)
Sources: CBRE, Refinitiv, Capital Economics
Yasemin Engin, Property Economist, email@example.com