Property advisor Savills Ireland has forecast that the Dublin industrial unit vacancy will fall below 1% by the end of the year after a surge in transactions during the first quarter.

The letting agent has predicted a record low vacancy rate of 0.7% before the end of 2022 following a quarter in which transactions for a combined 834,000 sq ft of industrial and logistics property were completed.

The total represents an increase of a third on the five-year first quarter average and an increase of 59% compared to the first three months of 2021.

Jarlath Lynn, director of industrial and logistics for Savills Ireland, said the top four deals -- all pre-lets or recently completed -- accounted for 60% of the take-up in Q1, and that of the stock due for completion in 2022, 43% has already been let, with a further 26% reserved.

The largest deal was the pre-letting of 200,000 sq ft in Northwest Logistics Park near Blanchardstown to a confidential international occupier building out its already significant Irish operation, followed by the pre-let of 134,000 sq ft in Mountpark II in Baldonnell to Germany supply chain management and logistics firm DB Schenker.

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DB Schenker has now let five units on the Mountpark Campus as well as a 219,00 sq ft unit in Kildare, which is currently under construction. The third-largest deal was for 88,000 sq ft at Greenogue Business Park in Rathcoole, Co Dublin to MH Star, an Asian e-commerce company.

"This leaves just 440,000 sq ft of stock available to lease which we are confident will lease before reaching practical completion or shortly after," Lynn said.

Of the vacancy rate forecast, Lynn said: “We calculated a lower bound by assuming all pipeline stock signs in the year it completes, which looks increasingly likely in the context of strong occupier demand and lack of available stock.

"We also assume that the two remaining modern units on the market will sign in the next three quarters. Removing both schemes from vacancy immediately reduces vacancy by 0.4 percentage points to 0.7%.

"While this is certainly a bullish case, we believe it is most likely, given the strength of the market and a strong chance the two standing units lease this year.”

Rents for industrial and logistics units, meanwhile, have risen 7.6% year-on-year to €11.25 per sq ft, fuelled by a "persistent imbalance" of supply and demand for modern stock, according to John Ring, director of research at Savills Ireland.

"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," Ring said.

"Indeed, data from Linesight, a construction company, suggests that the upper-bound cost of construction of warehouses has increased by 8.8% over the same period, outpacing rental growth. This disparity is not isolated to 2021 either: construction costs have increased by 14.3% since 2020, while prime rents only increased by 12.5%.”

Ringer added that some developers have reported increases in input costs of 25-30% and that tender offers from sub-contractors have declined "sharply".

"This is not to say that development will become unviable, build costs form only part of the calculus when a developer or landlord sets rents. 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.”

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