Page 45 - Linkline Autumn 2016

Brexit Impact for the Industrial and Logistics Property Market
Garrett McClean, Executive Director, CBRE
Anything that creates uncertainty is un- welcome in the property market and to say that the result of this summer’s Brexit vote has created uncertainty is clearly an understatement. However, it will be some time before there is clarity on how
the Irish economy, and in turn the real estate sector, will be affected by this unexpected development.
One of the only positive outcomes for the Irish commercial property market is a potential increase in demand for Dublin office properties in the medium to long term as some financial services, technol-
ogy and other firms seek to relocate from London to alternative Euro-denominated capitals. If this materialises in due course, Dublin will need to have a ready supply of modern office stock and, more importantly, affordable residential accommodation to cater for this increased appetite.
In the short term, it is likely that some decisions will be delayed as occu- piers and investors take time to consider the implications of the Brexit referendum vote. Similarly, industrial and logistics occupiers who are net exporters to the UK, particularly those that are exposed to fluctua-
tions in sterling as a result of the Brexit vote, are unlikely to make large expansion or relocation decisions in the short term until the landscape is somewhat clearer. In the same way that some office occupiers may relocate to Ireland in the aftermath of the Brexit vote, we could see some industrial and logistics occupiers opting to locate in Ireland as
an alternative to the UK over the next few years, but it remains to be seen to what extent this materialises. Another sector that is likely to see changes as a result of the Brexit vote is the retail sector of the economy, which may need to alter their storage and delivery options if a hard border between Ireland and Northern Ireland is ultimately put in place. This could influence demand for industrial and logistics properties in the
Republic in due course. However, at this juncture, it is difficult to determine.
We have seen consistent activi- ty in the industrial property market over recent months with several requirements active at present. Industrial take-up during Q2 2016 (and indeed in the first half of 2016) has been somewhat lower than the record volumes of activity achieved last year. However, this is reflective of a severe scarcity of modern accommo- dation in straegic locations, as opposed to a weakening in de- mand levels. With prime indus- trial rents continuing to edge upwards, the viability of new development will ultimately improve. Prime headline rents in Dublin are now in the order of €85 per square metre and are firmly on target to reach our forecast of €94 per square metre during the final quarter
of 2016. As a result of increased rents, we expect to see some specu- lative development activity emerging within the next few quarters, which will begin to alleviate supply pressures. In the meantime, many occupiers will have no option but to continue to pursue ‘built- to-suit’ solutions to satisfy their requirements. Supply shortages
are expected to continue to prevail in this sector for the forseeable future. Until such time as prime rents rise further, this is likely to re- main an issue as developers will not build speculative accommoda- tion until such time as it is viable. We therefore expect to see further tightening in tenant inducements in leases over the course of the coming months with landlords firmly in control in this sector until new supply ultimately starts to materialise. We also expect to see
an increase in pre-letting negotiations as occupiers vie to acquire new facilities developed on a ‘built-to-suit’ basis. Appetite for quality industrial investment opportunities remains strong although supply is still very constrained, particularly for larger lot sizes.
Earlier this year CBRE released the first Irish Logistics & Supply Chain Confidence Index, which was co-sponsored by KPMG. The research was undertaken by specialist research agency Analytica, who under- take a series of similar surveys across a number of jurisdictions. More than 50 senior decision makers from across (1) the logistics and (2) the shipping sectors in Ireland participated in the survey. Respondents in- cluded CEO’s, Managing Directors and senior management of some of the largest logistics providers, firms and buyers in the State. Although this survey was completed prior to the unexpected Brexit result, it was interesting to note that prior to the vote in June, only 5% of respon- dents expressed a concern about Brexit and its potential implications for their businesses. It will be interesting to review this in next year’s survey.
Some of the key findings of the research were follows:
• Almost three quarters of respondents said they were more confident about business conditions in
the logistics sector than they were only 12 months ago. Logistics operators are considerably more positive than those involved in shipping.
The CharTered InsTITuTe of LogIsTICs & TransporT 45
PROPERTY MARKET