A NEW report on the industrial property sector in Dublin shows that the vast majority of companies are now opting to buy buildings rather than rent. The study by the Sherry FitzGerald estate agency says because of the prolonged period of low interest rates, market demand has been diverted away from leasing towards purchasing. The agency estimates that only 35 per cent of the companies looking for new premises are prepared to lease space.
To compound their problems, these companies have to compete directly with investors for the limited number of buildings being offered for sale. Institutions have been particularly active over the past year in trying to rebalance their portfolios by acquiring new industrial buildings with strong tenants. Even developments offering a break clause to tenants are in keen demand.
Sherry FitzGerald says despite the strong demand by companies to purchase premises, 66 per cent of the space coming on the market is only available for leasing. This leaves about 25 per cent of the space for sale, apart from buildings which are either for sale or to let.
James Meagher, head of Sherry FitzGerald's commercial department, says many companies which traditionally rent premises in order to release capital for expansion are now opting to buy because of the availability of low cost, long-term financing. In doing so, they were creating an asset band fixed asset investment is now an attractive proposition because of the low interest rates".
The report, which looks at 174 industrial units in Dublin, shows that contrary to recent studies which suggested the volume of vacant space is rapidly running out, there is currently 1.9 million square feet of industrial space available in Dublin. The figure represents both existing properties and those that are being built and are due to be completed within six months.
Sherry FitzGerald has identified a sharp difference between the size of buildings available and the size in demand. It says the historically high growth levels in the economy have facilitated the expansion of many smaller business into the industrial market. These starter companies would previously have been located in the promoters own home. There has been an increase of over 60 per cent in the number of new businesses coming on the industrial market since 1989. This has resulted in a high level of demand for small to medium sized premises.
The study shows that 43 per cent of market demand is for units of less than 5,000 square feet. In contrast, only 19 per cent of the available space is less than 5,000 square feet in size.
The inevitable result of this mismatch between demand and supply has been an increase in the price of industrial property, particularly modern buildings in prime locations. Such locations are currently achieving rates of about £60 per square foot where less than a year ago rates would have been £50 to £55 per square foot."
With 53 per cent of all industrial space located in south-west Dublin, Sherry FitzGerald says there is no longer a plentiful supply in the area of the size required. For that reason, the market is spilling over into the northern region.
This development will be further enhanced by the opening of the Northern Cross motorway later this year. Other external factors, like the increased trade with Northern Ireland, is complementing this process and the combined result will be an increased level of industrial activity on the north of the city.
The agents say despite the surprisingly high volume of space available, there was still a definite shortage of the type of premises which are currently in demand.
Factors such as the buoyant economy and low interest rates have had an impact on the focus of market demand, switching its attention towards smaller units which carry the added benefit of a purchase option.
These factors combined with the impact of the developments in the northern region will dictate the future of the industrial market in Dublin".
