The Industrial and Logistics vacancy rate in Dublin is set to drop to a record low of 0.7% before the end of the year, the first time it has dropped below 1%, according to a new report published yesterday by Savills Ireland, which also predicts the vacancy rate will remain at historic lows due to unprecedented demand.
In Q1 this year 834,000 square feet of industrial and logistics property transacted in Q1 – 33% higher than the five-year Q1 average and an increase of 59% compared to Q1 2021. The top four deals, which accounted for 60% of take-up in Q1, were all for pre-lets or recently completed stock.
“Of the stock due for completion this year 43% is already let, with a further 26% reserved”, said Jarlath Lynn, Director of Industrial and Logistics, Savills Ireland. “This leaves just 440,000 square feet of stock available to lease, which we are confident will lease before reaching practical completion or shortly after, given the strength of the market”.
The strength of the market is due to the growth of large international firms in the Dublin market. This was evident in the top deals this quarter, the largest of which was the pre-letting of 200,000 square feet in Northwest Logistics Park to a confidential international occupier. The occupier continues to build out what is an already significant operation here. Other large deals involved DB Schenker, a leading German supply chain management and logistics solutions firm, and MH Star, an Asian e-commerce company.
“Rents for prime stock have seen robust growth over the last year and now stand at €11.25 psf, an increase of 7.6% on Q1 last year”, said John Ring, Director of Research, Savills Ireland. “A persistent imbalance of supply and demand, particularly for modern stock, has fuelled this growth. The occupier market is undeniably strong, but cost factors are also influencing rental growth and are likely to strengthen in the current high inflation environment”.
The upper-bound cost of construction of warehouses has increased by 8.8% over last 12-months, outpacing rental growth, the Savills report found, and some developers have reported increases in their input costs of between 25% and 30% this year.
“This is not to say that development will become unviable”, said Ring. “However, increased cost uncertainty will inevitably adversely affect more risky speculative development. While this may give rise to caution among developers, given the strength of the market, we would expect construction to continue at pace supported by sustained rental growth.”