The industrial and logistics sector continues to be somewhat immune to the wider shocks of Covid-19 and demand for investment opportunities, at every lot size, is at unprecedented levels. Interest in the sector is underpinned by the strength of the occupier market, which continues to benefit from the ongoing rise of e-commerce and Brexit-planning. A buoyant occupier market together with positive sector forecasts is almost unique in the current climate and helps explain the growth in demand, as investors continue to refocus their strategies towards this sector.
A number of German funds that have been so dominant recently in acquiring core city centre offices are now actively looking for industrial & logistics opportunities. Existing players, like M7 Real Estate, Core REIT and Arrow Capital Partners are also aggressively seeking opportunities. We are also seeing a steady flow of new entrants and demand is not limited to Dublin with investors prepared to look at regional opportunities also.
Investment opportunities, at all levels are scarce amid acute investor interest and while there was a lack of investment transactions in Q3, a number of substantial, high profile deals are currently progressing off market. Forecasts for record Q4 spend are high and expectations on a busy start to 2021 are well founded.
Prime yields have remained broadly stable at 4.85% and we continue to be an attractive destination for international capital where prime yields in cities such as Paris, London and Berlin for example all hover around 4%. Short to medium term forecasts is for yield contraction due to the sheer weight of capital now looking to be deployed in the sector.
A lack of supply continues to be a major factor of the market. It is very much a landlord’s market and there is an extreme lack of Grade A space. Overall availability is forecast to fall over the next 12 months and the sector isn’t standing still with new development, predominantly speculative, continuing at pace - in Q3, some 82,685 sq m (890,000 sq ft) of new space was reported to be under construction.
The lack of availability is putting pressure on rents and prime rents increased during the quarter, having remained flat since Q4 2019. They now stand at €10.45 per sq ft (€112.50 per sq m). The two largest deals in Q3 accounted for approx. 25% of all take-up. The largest was the 8,865 sq m letting of the Former Electrolux Facility on the Naas Road in Dublin 12 to DHL. Elsewhere, Easons took 8,215 sq m in Part of Former Georgia Pacific facility along McKee Avenue in Dublin 11.