The logistics market in Ireland has begun 2021 as the golden child of the property sector. The economic and political climate in the past number of years has helped to shape and grow its development, but cultural trends, and the adaptation of society to a changing world has also been pivotal in moulding the sector.
In its most basic sense, logistics is the blanket term used when referring to the process of managing how resources are acquired, stored and distributed to their final destination or end user. As such, it focuses on storage and transportation services. For the Irish property market, this has manifested in increased take-up of warehousing space, data centres and transport hubs.
It would not be possible to discuss any sector in the current climate without acknowledging the impact of the COVID-19 pandemic. Surprisingly for the logistics sector, the pandemic has likely been a friend to its recent rise in popularity. While not the most welcome of allies, COVID-19 has seen a change in the way we live our lives. People are restricted in how they interact. Businesses have had to adapt. Consumers have had to develop new habits.
One such habit has been a growth in online shopping as a result of nonessential physical retail outlets remaining closed during extended periods of restrictions. This emergence in e-commerce has resulted in increased warehousing demand, and also an increased demand for data centre space.
It's no secret that the uncertainty surrounding Brexit has impacted on certain sectors of the economy in recent times. On the flip-side however, this uncertainty has had knock-on effects for companies who have had to change the way they do business to prepare for the possible eventuality of a no-deal Brexit. Ultimately, a deal was agreed but by then many businesses had already put plans in place. For the Irish logistics market, this in turn meant a higher demand for space.
The COVID-19 Brexit Balance
CBRE reported in its recent Market Outlook for 2021 that a solid uptake was recorded in the industrial and logistics sector across 2020. This was in line with high volumes achieved in previous years. Indeed, in the last quarter of 2020 the Dublin industrial and logistics sector saw the highest quarterly take-up in 5 years.
The logistics sector is both capital and employment sensitive, and, coupled with the global freight transport industry, is driven by trends in global trade. The Department of Business, Enterprise and Innovation in its Focus on Transport and Logistics in August 2020 noted that while transport in general (including passenger traffic) fell post-COVID-19, air cargo supply lines have remained robust throughout the crisis. It also noted that the ecommerce driven logistics industry has grown in 2020. As a result, those companies have increased employment.
In the latter part of 2020, Brexit stockpiling by companies in the run-up to Christmas was reported as assisting Dublin Port Company in its overall performance for 2020. While the second quarter of 2020 saw a large reduction in volumes through the Port, this recovered in the third quarter and further again in the fourth quarter.
With the uncertainty generated by both COVID-19 and Brexit, trends in the Irish (and international) logistics sector have emerged. These include:
- The popularity of online shopping is likely to remain constant as consumers have now become more accustomed to this method of purchasing. This should see increased demand for data centre space, and also for storage and warehousing for online shopping.
- With more people working from home, and home-schooling becoming commonplace during periods of restriction, cloud-based businesses have performed strongly. Microsoft recently reported that its Azure cloud computing services grew 50% in the final quarter of 2020. This was the second quarter that growth was experienced.
- As COVID-19 vaccines come on stream, storage requirements may change and develop. For example, the Pfizer BioNtech vaccine has demonstrated the need for cold storage facilities, and indeed the Health Services Executive (HSE) took delivery of a consignment of ultra-low temperature storage freezers to the National Cold Chain Centre in December 2020.
- Amazon has recently been reported as being close to agreeing terms on additional warehouse space in Dublin for its fulfilment centre. This is in addition to its existing warehousing facility for its Amazon Prime business. The new fulfilment centre would be a welcome development for Irish consumers as it would allow for the UK to be bypassed by Amazon, avoiding potential delays or further charges due to Brexit trading arrangements. It is reported as being the largest deal of its type in the Irish property market.
Other Developments and Trends
Outside of global pandemics and international political changes, sustainability remains high on the agenda globally. In Ireland, the environment is seen as a valuable asset to be protected, and businesses need to operate in a way that is sustainable and poses as little threat to the environment as possible. An Post (the Irish postal service) recently became the first Irish logistics company to join EV100. This is a particularly timely development for a thriving logistics market in a world that is increasingly investing in sustainable ways of doing business. EV100 is a global initiative which describes itself as bringing together forward-looking companies, committed to accelerating the transition to electric vehicles. 30% of An Post's fleet is already made up of electric vehicles, and the company is now focusing on alternatives for its HGV fleet with a view to carbon reduction.
In recent years, international investors have been competing for available industrial and logistics space in the Dublin market and this trend is set to continue. Prime industrial rents rose in 2020 and are expected to increase further in 2021. Prime industrial yields are expected to be stronger in 2021 than previously. Data centre and technology space also remains popular, with the Irish-based Hewlett Packard campus being sold in November 2020 to an international investor.
COVID-19 and Brexit have been influential in the Irish logistics market, and while they may in themselves be transient, the changes they have brought about in how people live their lives, and in how businesses operate will continue into the future. Coupled with the desire to find sustainable ways of living and working, this can only be positive for the future of the logistics market in Ireland, and beyond.
Originally Published by The Law Firm Network.
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