autumn review 2012 · 2012. 10. 17. · autumn review 2012. performance across the regional...

Regional Markets

Autumn Review 2012

Performance across the regional commercial markets remained largely stable and

somewhat positive across some of the regions during the third quarter of the year.

However, cyclical instability continues to be an issue arising from fluctuations in

demand and the release of second hand space to the market

In the office market, both the Limerick and Galway regions witnessed stronger

levels of take up during the three month period. However, activity levels remain

below the long run averages. Supply levels across all regions continued to show

signs of stability during the three month period

The quantum of take up decreased in the industrial markets in Cork and Limerick.

However, despite this reduction, activity remains robust; matching peak market

levels. In contrast, the Galway industrial market was stagnant during the three

month period

Summary

...

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The Regional Commercial Markets Key figures Q3 2012

OfficeMarket

Galway Cork Limerick

Market Stock 293,000 Sq M 510,650 Sq M 305,300 Sq M

Take Up 3,900 Sq M 3,500 Sq M 2,100 Sq M

Availability 34,900 Sq M 126,300 Sq M 73,250 Sq M

Vacancy Rate 11.9% 23.2% 21.7%

Under Construction

0 Sq M 26,700 Sq M 0 Sq M

The Regional Commercial Markets Key figures Q3 2012

Industrial Market

Galway Cork Limerick

Market Stock 463,950 Sq M 1,037,100 Sq M 923,100 Sq M

Take Up 2,300 Sq M 8,300 Sq M 11,550 Sq M

Availability 59,550 Sq M 225,046 Sq M 258,750 Sq M

Vacancy Rate 12.8 % 16.5% 28.0%

Under Construction 0 Sq M 25,750 Sq M 0 Sq M

Source: DTZ Sherry FitzGerald Research

Regional Markets

Quarterly Regional Office Take Up, Q3 2012Sq M


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The total volume of space transacted during the third quarter of the year stood at 3,500 sq m. The level of take up increased notably when compared to the previous quarter; 2,000 sq m. Furthermore, the number of individual deals transacted remained robust. That said, the level of transaction activity remains significantly lower than the long term annual average.

The most sizable deal of 2012 was taken up during the quarter. 1,550 sq m was occupied by AIB in Matthew House on Matthew street in the city centre. Furthermore, another sizable deal took place in Beckett House, Ballincollig where EMC, a computer-backing storage company occupied 850 sq m of space. That said, an analysis of the profile of the space transacted in quarter three relays that activity in the market is largely dominated by smaller sized deals, as just three transactions measured over 150 sq m.

Demand for the city centre continues, absorbing 55% of activity this quarter. The majority of deals transacted are on a short term basis with break options and rent free periods. Additionally, 8,000 sq m of space has been reserved in the three months to September. This should positively impact take up in the forthcoming quarters.

An analysis of the profile of tenants reveals that companies are actively looking to invest within the Limerick office market and enquiry levels are relatively robust, for example FDI. Furthermore, future demand as a result of FDI will have a positive impact on the market with a number of high profile companies such as the Apple amongst seven others, announcing investment so far this year. Some of these companies are previous investors whom are now expanding their services. There was eleven IDA supported investment announcements recorded in 2011.

The total quantity of space transacted in the twelve months to quarter three stood at approximately 12,200 sq m. A comparison with the same period in 2011 reveals an increase of 12%. Regarding location, the demand for space in the city centre dominated in the same period. An analysis of space transacted in the past year has revealed that 58% of all transactions occurred in the city centre while the remaining 42% was absorbed in the suburbs. Third generation space remains the preferred type of accommodation. Further analysis has shown that 64% of transacted space in the year to date comprised higher quality Grade A space while the remaining 36% comprised B grade space. 43% of this accommodation was absorbed in the city centre, whilst the suburbs accounted for 57%. However there is limited availability of larger A1 buildings in the City Centre which may prove to be an issue in the forthcoming quarters.

The total quantum of available accommodation reduced by 2%, when compared to the previous quarter; available stock now standing at 126,300 sq m. A comparison with the same period in the previous year reveals a 6% increase. The increase in supply remains driven by the quantity of second hand space being released to the market. Furthermore, this figure is expected to rise as receiver properties are now beginning to come to the market.

An analysis of the spread of available space in the year to quarter three reveals that the suburbs continued to account for the majority of available accommodation in the region, standing at 69%, while the remaining 31% was accounted for in the city centre. A further analysis of accommodation has shown that 74% of all available stock is of higher quality Grade A space; 47% of this figure absorbs the highest quality Grade A1 stock. The remaining 24% consists of B grade stock.

The relative decrease in supply levels in the three month period is reflected through a decrease in the overall vacancy rate which reduced to 23.2%, down from 24.7% in the previous quarter. This compares to a vacancy rate of 20.9% in the comparable period in 2011. It is important to note that the current rate remains triple the equilibrium level of 7%.

No new space completed construction during the third quarter of the year and no new space commenced construction during the three month period. As a result, the quantity of space under construction remained unchanged at 26,700 sq m. Furthermore, no new stock entered the market; thus the total stock of accommodation in the office market remained unchanged at 510,650 sq m.

Cork Office MarketThe Cork office market saw a welcome uplift in transaction activity in the third quarter of 2012. This followed subdued levels of activity during the first half of 2012.


Cork Office Market: Total Availability and Vacancy Rate

This compares to 10,400 sq m transacted in the previous quarter, however this level of activity remains healthy. Moreover, it represents a significant increase from the comparable period in 2011 when take up levels stood at just 2,100 sq m.

The total quantity of space transacted in the year to quarter three stood at 27,050 sq m; this compares to the corresponding period in 2011 which totalled 14,400 sq m. This represents a very significant uplift when compared to the corresponding period in 2011. An analysis of overall transacted space over the past twelve months reveals that 95% of the transactions completed comprised lettings.

The most sizable of the deals transacted in quarter three was an occupation of 6,050 sq m in the Former Britvic Facility in Little Island. In addition to this deal, there was also a relatively sizable occupation of 950 sq m which was taken up in Nyhan Industrial Estate, Tramore Road.

In the year to quarter three, demand for industrial space was driven by the South West region, which accounted for 43% of the space transacted. This was followed by the North East which absorbed a further 32% of the space. The remaining space was taken up in the South East, North West and City Centre; 15%, 7% and 3% respectively.

Demand remains strongest for short term deals. Enquiry levels are relatively subdued for the industrial market however there has been an increase in start-up enquiries. Furthermore, there is increased interest in relocating where tenants are seeking to take advantage of flexible and competitive terms.

The total quantity of available space rose to 225,046 sq m at the end of September. Quarterly fluctuations continue, albeit to a lesser extent, and an increase of 2% was witnessed during the three month period. This follows a reduction of 2% in available space in the previous quarter. Thus, the favourable demand levels during the quarter were unable to outweigh the increase in the release of second hand space to the market. Moreover, supply levels are expected to continue to fluctuate over the coming quarters.

The North East region continues to account for the largest proportion of available industrial space; 37%. A further 31% is located in the South West region. The South East and North West regions account for 16% and 9% respectively, while the remaining space was located in the city centre.

The vacancy rate for the market increased from 16% to 16.5%. This vacancy rate remains broadly unchanged from the rate recorded during the corresponding period in 2011. However, the overall rate remains considerably greater than the equilibrium rate of 7%.

No new space completed construction during the third quarter of the year thus the total stock of accommodation in the industrial market remained unchanged at 1,037,100 sq m. In addition, no new developments commenced construction during the three month period and nothing is expected in the immediate future; leaving the quantity of space under construction unchanged.

Cork Industrial MarketThe third quarter of 2012 saw relatively robust transaction activity. Approximately 8,300 sq m of space transacted during the three month period to September.

Cork Available Industrial Space by Eaves Height, Q3 2012


Robust take up levels

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Galway Office MarketThe third quarter of 2012 witnessed a stronger level of transaction activity in the Galway office market, following moderate activity in the second quarter of the year. At the end of the three month period to September, the volume of transacted space stood at approximately 3,900 sq m. This represents an increase in the quantum of take up when compared to the previous quarter and the corresponding period last year with transaction activity of 2,550 sq m and 1,800 sq m respectively.

Take up during quarter three comprised just two deals. The most sizable of these deals was the sale of the Webworks Office Building on Forster Street, measuring 3,150 sq m. This deal accounts for 43% of total take up in the year to date. Fluctuations in the market remain an issue with the minority of deals being of a larger size, thus having the potential to skew take up levels.

Demand is strongest for third generation space. Moreover, higher quality Grade A accommodation is the most sought after in the market place, evidenced by the fact that 81% of total space transacted in 2012 to quarter three comprised of newer Grade A1 space in the city centre. The remaining space absorbed comprised B1 third generation suburban space.

The IDA is increasingly emerging as a dominant player, driving demand in the office market. Furthermore, future demand as a result of FDI, remains robust with a number of high profile companies such as the HP, Mylan, Cisco and Merit Medical Systems to name a few announcing investment. Some of these companies are previous investors whom are now expanding their services. In 2011, there was a total of fifteen IDA supported job and investment announcements recorded. In the year to date, there has been nine; including EA Games.

An analysis of the quantity of accommodation transacted in the twelve months to quarter three stood at approximately 14,000 sq m. This reflects a welcome uplift in activity when compared to activity levels during the corresponding period last year, which stood at 7,350 sq m. With regards to location, the suburbs remain the preferred location over the past twelve months absorbing 70% of all activity. The remaining 30% was taken up in the city centre. The apparent demand for the suburbs is as a result of the quality of accommodation in this region; a greater availability of higher quality Grade A space. However, the city centre currently suffers from an availability constraint of this stock.

Availability in the Galway office market continued to fall during the third quarter of the year; aggregate availability falling by 9%. The total quantity of available space now stands at approximately 34,950 sq m, compared with a total of 38,400 sq m in the previous quarter. A comparison with the same period in 2011 reveals an 11% decrease in the overall volume of available offices in Galway. This reflects a slowdown in the quantum of second hand space being released to the market combined with a relative uplift in demand.

In terms of the distribution of available space, the suburbs remain accountable for the majority of space absorbing 69% of all accommodation. The remaining 31% is located in the city centre. Enquiry levels in the third quarter continued to be relatively subdued while demand for the city centre remains weak due to the quality of stock and the nature of tenants who generally sought city centre office space i.e accountants, solicitors. Thus, demand remains generally for the suburbs. Subsequently, the lack of new accommodation coming to the market continues to be an issue for prospective tenants looking for modern office space.

The reduction in supply levels is further highlighted by the reduction in the vacancy rate which dropped to 11.9% from 13.1% at the end of the third quarter. Furthermore, this compares to 13.1% recorded in the corresponding period last year. While the vacancy rate is now edging closer to the equilibrium rate of 7%, it still remains proportionately greater. That said, it remains the lowest vacancy rate of all the regional markets.

The gradual reduction in the suburban vacancy rate continued as the vacancy rate reduced from 14.4% to 14.2% at the end of quarter three; largely due to nothing new being constructed. Furthermore, the city centre vacancy rate witnessed a sharp drop from 11.3% to 8.7%; this reduction stemming from the large transaction completed in the quarter.

There is currently nothing under construction in the Galway Office market. Thus the total stock of office accommodation remained unchanged at 293,000 sq m at the end of September.

Galway Office Market: Total Availability and Vacancy Rate


Galway Industrial MarketThe performance of the Galway industrial market remains unpredictable. Data for the third quarter of 2012 illustrates renewed weakness in the market with no activity recorded during the three month period. This follows a significant uplift in transaction activity in the market during the previous quarter.

The total quantity of accommodation taken up in the twelve months to quarter three stood at 4,100 sq m, representing an increase in transaction activity when compared to activity levels during the corresponding period in 2011; 2,800 sq m. That said, activity in the market remains volatile with continued fluctuations in quarterly levels of take up.

The North East region remains the preferred location, accounting for all of the space transacted during the twelve months to quarter three 2012. This largely stems from

the apparent appetite for out of town industrial space on better road networks. This trend emerged in 2010 in the industrial market, with occupiers moving out of the city centre to more modern accommodation and continued throughout 2011. With no activity recorded in this quarter, it remains to be seen if the outward demand will continue in the final quarter of 2012. Moreover, all transactions in the twelve month period comprised lettings.

Demand remains relatively subdued with enquiry levels and general market sentiment remaining weak. Of the limited new active enquiries, the majority remain focused on space on the outskirts of the city close to the new M6 road network. However, the IDA remains a dominant player in the overall Galway market and as a result may impact future transaction decisions and levels in the industrial market. This is as a result of a lack of suitable larger-sized office accommodation for multi-national companies with specific square foot requirements.

The overall volume of available industrial space remains unchanged at approximately 59,550 sq m at the end of September, with no second hand accommodation being released to the market. A comparison with the same period in 2011 reveals a 10% decrease in supply levels. This partly reflects a moderate reduction in the quantum of second hand stock being released to the market. The corresponding vacancy rate for the market overall remains unchanged at 12.8% in the third quarter of the year. That said, the comparable rate twelve months previously was at a higher level of 14%.

The North East region accounts for the majority of the available space, 98%. This region continues to possess an elevated vacancy rate of 18.6%, despite stronger demand in this region. This rate is considerably higher than the market equilibrium rate of 7%. The remaining 2% of available space is located in the North West where the corresponding vacancy rate remains unchanged at 0.9%; this compares to a vacancy rate of 4.7% in the corresponding period in 2011.


There is currently nothing under construction in the Galway industrial market. Shortages of modern, suitable accommodation in the industrial market are set to continue in the medium term. Consequently, the total stock of accommodation remains at 463,950 sq m.

Galway Industrial Availability byEaves Height, Q3 2012

The market was stagnant during the quarter

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The majority of transaction activity in the quarter comprised smaller-sized deals. 80% of all transactions in the year to date, measured under 500 sq m; highlighting that the appetite for smaller sized deals continues to dominate the market. However, a transaction of 950 sq m was also recorded in the quarter. This space was occupied by DHL in Westpark, which is situated in the Shannon Free Zone. The majority of space taken up was high specification modern office accommodation.

Demand is strongest for third generation space. Moreover, higher quality Grade A accommodation is the most sought after in the market place, evidenced by the fact that all

transacted space in quarter three comprised of newer Grade A space.

An analysis of the profile of tenants reveals that companies are continuing to expand within the Limerick office market. Moreover, the profile of tenants tends to be of the traditional nature in the city centre in particular. New tenants from Dublin and abroad, particularly the IDA, are showing increased interest in the market. In 2011, the IDA provided support for six job and investment announcements in the Limerick office market; Dell and Analog are among these. They have become increasingly influential in the market. In the year to date, there have already been five announcements for investment; including the recent announcement of 400 jobs with Northern Trust over the next three years.

Much of the deals transacted are those with flexible lease terms, for example a ten year lease with tenant breaks. Enquiry levels were strong with particular interest in office accommodation with larger floor plates. Furthermore, reserved accommodation now accounts for 18% of all available stock. This should positively affect the Limerick office market through increased transaction activity in the coming quarters.

On an annual basis transaction activity increased from 1,950 sq m. when compared with the coresponding period in 2011. The total quantum of space transacted in the year to quarter three stood at 10,450 sq m. This represents a welcome uplift of 6% increase on the comparable level recorded twelve months previously. On an annual basis, the city centre accounted for just over half of all newly occupied space during the twelve month period, while the remainder was divided between the Shannon Free Zone and the suburbs. The activity levels in the suburbs remain low as a result of a lack of fitted office space in the National Technology Park near the University of Limerick. This remains the most sought after area however due to the lack of availability, companies are now looking for options in the city centre.

The overall volume of available space dropped to 73,250 sq m during the third quarter of 2012, showing a decrease of 2%. A year-on-year comparison reveals a 3% decrease in available accommodation. This reduction mainly stems from a fall on the quantum of second hand space being released to the market; showed a reduction from 5% in the previous quarter to 3% in quarter three.

An analysis of the vacancy rate reveals a reduction to 21.7%, down from 22.3% in the previous quarter. The comparable rate during the same period in 2011 was broadly similar. The current rate remains over triple the equilibrium rate of 7%, emphasising the current level of over supply.

Regarding the location of available space, the city centre continues to account for the largest proportion of available space, 42%. The suburbs and the Shannon Free Zone both account for 30% and 28% respectively.

The total stock of accommodation remained unchanged at 305,300 sq m at the end of September. No new developments have commenced construction during the three month period and there is currently no space under construction in the office market. Additionally, good fitted accommodation is decreasing in certain areas and newer shell and core building are not being considered by potential tenants.

That said, as a result of the high vacancy rate in the market, it appears unlikely that any space will commence construction in the immediate or near future.

Limerick Office MarketThe level of activity in the Limerick office market was relatively subdued during the opening half of 2012 and this trend continued in quarter three as the quantum of take up diminished. The total quantity of space taken up reduced in the three months to September to approximately 2,100 sq m from 3,050 sq m in the previous quarter.


Transaction activity remains subdued

Limerick Office Market: Total Availabilityand Vacancy Rate

That said, the condition of some of the vacant accommodation is quite poor with very few modern industrial units. This may prove to hinder activity levels in future.


Supply levels remain the highest in the South West region, accounting for approximately 36% of the industrial space currently available in Limerick. The Shannon Free Zone and North East absorb a further 28% and 18% respectively. The remaining space is accounted for in the South East and the North West; 10% and 6% respectively.

The overall market vacancy rate reduced marginally from 28.4% to 28% at the end of September, reflecting more stability in supply side conditions. The corresponding rate in the comparable period in 2011 was 28.8%. The vacancy rate level remains four times the equilibrium rate of 7% and thus highlights the strength of supply in the market at present. Furthermore, the vacancy rate falling is not a reflection of the entire market rather the proportion of the market with better quality industrial space.

There has been no space under construction in the Limerick industrial market since the third quarter of 2008. Consequently, the total stock of accommodation in the market also remained unchanged at 923,100 sq m.

Limerick Industrial Available Space by Eaves Height, Q3 2012

The total quantity of accommodation transacted during the quarter revealed a reduction from 14,300 sq m to 11,500 sq m in the three months to September. That said, larger sized deals are skewing the overall volume of take up.

The most sizable of the quarter three deals was the sale of Flextronics; 9,300 sq m in the National Technology Park in Castletroy. This property is understood to be purchased for redevelopment as it is in poor condition. Apart from the Flextronics sale, the most sizable occupation was of 900 sq m which was recorded in Eastway Business Park, Ballysimon Road. The space was occupied by a gymnasium. This letting is reflective of the fact that alternative uses are being sought for industrial units with profile on the main arterial routes in Limerick city.

Demand remains strongest in the Ballysimon/Castletroy area due to its connectivity to the new road network and city centre. An analysis of the profile of tenants reveals that local companies are now becoming increasingly dominant in the market. Enquiry levels were subdued during the quarter but remain relatively strong overall; particular interest being for purchase options which reflects an uplift in confidence in the market. In addition, flexible lease terms are also being sought for lettings.

On an annual basis, transaction activity has increased when compared with the corresponding period in 2011; from 6,132 sq m. The total quantity of accommodation taken up in the year to

date 2012 totals 27,800 sq m, representing a 41% increase when compared to the same period in 2011; 19,740 sq m. It is important to note that these levels have not been reached since peak market levels.

Demand was strongest in the North East, accounting for 53% of all newly occupied space during the twelve month period. A further 27% was absorbed in the South East, 13% in the South West and 7% in the Shannon Free Zone.

The volume of available accommodation in the Limerick industrial market fell in the three month period to September. During the course of 2011 and the first half of 2012, there have been ongoing signs of stability. The total quantity of available space now stands at 258,750 sq m, a reduction of 1% on the previous quarter and a reduction of 3% on the comparable period in 2011. However, this was largely driven by demand side factors with larger sized transactions occurring.

Limerick Industrial MarketSimilar to the office market, activity in the industrial market has seen a reduction in the quantum of space transacted during the three months to the end of September. However, the quantum and volume of take up remains robust; the quantum of take up matching peak market levels.

Activity levels at peak market levels

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Location Cork Galway LimerickUnits 1,000 sq m

South East €30/€400 €32-€43/€323-€377 €38-€54/€480-€645

South West €33/€430 €32-€43/€323-€377 €38-€54/€480-€645

North East €33/€430 €32-€43/€323-€377 €38-€54/€480-€645

North West €30/€400 €32-€43/€323-€377 €38-€54/€480-€645

Location Third Generation City Centre Third Generation Suburban

Cork €205 - €230 €100 - €150

Galway €162-€183 €108-€129

Limerick €86 - €172 €86 - €129

Indicative Regional Office Rents Market

Indicative Regional Rents and Capital Values for Modern Industrial Buildings



Market Definitions

Take Up:

Reserved:

Pre-let:

Pre-sold:

3rd Generation:

2nd Generation:

Georgian:

Prime:

Central Business District:

Secondary:

Suburban:

Vacancy Rate:

Occupation of a building by a tenant.

Under active negotiation with single tenant.

Contract is signed by tenant but premises are not yet occupied.

Contract is signed by tenant but premises are not yet occupied.

Modern Buildings, post 1990, with raised access floors.

Older Buildings, pre-1990, with floor trunking.

Approximately 1725 - 1830.

Prime locations within Dublin 2 and 4.

This incorporates the prime area of the city and extends to the IFSC and North and South Docklands.

Locations adjacent to the prime region Locations outside city boundaries such as Clonskeagh, Blackrock, Tallaght, Sandyford and the M50.

This is the ratio of availability to market stock. The vacancy rate for the Dublin office market is calculated excluding Georgian accommodation.

CONTACTMarian FinneganDirector of Research, Chief Economist Tanya DuffyResearch Assistant

164 Shelbourne RoadBallsbridge, Dublin 4T: +353 1 237 6300F: +353 1 237 6347

REGIONAL CONTACTS

CORKFrank RyanManaging DirectorTel: +353 - 21 - 427 5454

LIMERICKJohn BuckleyDirectorTel: +353 - 61 - 418 111

GALWAYAidan GavinDirectorTel: +353 - 91 - 569 181

BELFAST

DUBLINGALWAY

LIMERICK

CORK

This report should not be relied upon as a basis for entering transactions without seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Sherry FitzGerald.

© 2012

[email protected] | www.dtz.ie

DTZ is now part of UGL Services, a division of UGL Limited. The combined business creates one of the largest property services companies in the world, providing corporate/occupier clients with a global, integrated end-to-end service offering and best-in-class investor services capabilities in investment

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autumn review 2012 · 2012. 10. 17. · autumn review 2012. performance across the regional...

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