Continued Momentum In Ireland’s Commercial Property Sector As Summer Finally Approaches
Dublin, 1st May 2018 – Commercial property specialists CBRE today released their latest bimonthly report for 2018, focussing on trends and transactions in all sectors of the Irish commercial property market during March and April and their outlook for the months ahead.
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The last two months has seen continued activity in each of the occupier sectors of the Irish commercial property market with particularly strong volumes of activity recorded in the office and industrial & logistics sectors in the opening months of 2018. Meanwhile, the retail sector of the economy continues to perform solidly, buoyed by continued job creation, with employment in Ireland having increased consecutively in each of the last 22 months. Returns from Irish commercial property remain solid with total returns in the year to the end of Q1 running at 6.8% on an ungeared basis. Investor demand continues to outstrip supply with particularly strong demand for alternative investment assets and core opportunities in provincial locations such as Cork. An increasing proportion of transactions are now being conducted off-market. As Summer finally makes an appearance, the forecast is for continued momentum in the Irish commercial property market.
Investor appetite for core real estate investment opportunities in the Irish market remains strong. Demand has been boosted in recent months by investors who are keen to avoid hedging risk by investing in Euro-denominated jurisdictions. Despite an underlying scarcity of core product, there is evidence of increased activity off-market.
Total spend in the Irish investment market reached almost €930 million in Q1 - a strong result for the first three months of the year, buoyed by the completion of three transactions of more than €100 million.
The growth in appetite for alternative investments including PRS/Build to Rent and Student Accommodation over recent months is particularly noteworthy as is the increase in demand for good investment opportunities outside of the core Dublin market in cities such as Cork.
With the bulk of investor demand focused on prime assets, pricing is now critical for secondary properties where the pool of buyers is somewhat thinner.
Prime yields in all sectors remain stable at this juncture although some further tightening is expected in the PRS/Build to Rent, student accommodation and hotel sectors over the coming months as assets trade and new transactional evidence materialises.
Dublin is set to be the biggest beneficiary of strong tourist activity as demand for hotel rooms continues to outstrip supply in the capital.
RevPar in the city increased by 9.8% in the year to March 2018 according to Hotstats while occupancy in the capital was up 2.1% year-on-year.
CBRE Research suggests that approximately 1,300 additional hotel rooms are due for delivery in Dublin during 2018.
Only four hotel properties totaling almost €199 million were sold in Ireland during the first three months of 2018 but CBRE say that this mask underlying volumes of activity in this sector with a significant boost to transactional activity expected later this year.
There is particularly strong appetite from US funds for hotel investment opportunities in Europe at present with many of these funds looking specifically at opportunities in the Irish market.
Activity continued at pace in the Dublin office market in recent months following a very strong first quarter in which an impressive 83,493m2 of take-up was recorded in the capital. With a sizeable proportion of accommodation reserved at present and several large requirements active, the prospect is for continued momentum in this sector over the next couple of months.
As has been the case for some time now, the largest transactions in the office market are emanating from the expansion of existing occupiers as opposed to new entrants. That is not to say new entrants are not a feature of the market. However, CBRE Research shows that the largest transactions each quarter are primarily expansions.
Although there are currently 37 office schemes at various stages of construction in Dublin city centre, the property consultants say that it is encouraging that more than half of the accommodation with a 2018 delivery date has already been pre-committed.
As has been the trend over the last couple of quarters, the growth of flexible office providers has continued in the opening months of 2018. Indeed, according to CBRE Research, as much as 17% of office take-up in Dublin in the first quarter of the year was accounted for by co-working/flexible operators such as Iconic Offices, IWG, Pembroke Hall and WeWork.
Brexit-related enquiries are likely to solidify further over the coming months as the UK’s position on Brexit starts to become a little clearer, adding another welcome layer of demand in the office sector if this materialises.
Prime headline rents in the office sector in Dublin remain stable at €700 per square metre (€65 per sq. ft.). Meanwhile, the overall rate of vacancy in the Dublin office market is now sub 6%.
Industrial & Logistics
A scarcity of modern premises along key road corridors continues to exercise occupiers in the industrial and logistics sector of the property market. However, now that prime industrial rents in the capital have breached the €100 per square metre benchmark, viability has improved and a small number of speculative schemes are under construction while other schemes are entering the planning process.
New development will in time alleviate the supply pressures that have characterised this sector of the market over recent years. However, in the interim, prime headline rents, which are currently in the order of €102.20 per square metre (€9.50 per sq. ft.), will continue to increase, with a further 7% uplift anticipated by year-end 2018.
Despite inherent shortages of modern industrial & logistics stock, take-up in the Dublin market during the first three months of 2018 reached an impressive 71,595m2 - up 41% on the same period last year.
There has been continued activity in the retail sector of the property market over recent months buoyed by strengthening consumer sentiment. As has been the case for some time now, indigenous Irish retailers and international retailers are most active at present with UK retailers remaining reticent to expand or roll out new stores until there is more clarity on the outcome of Brexit negotiations.
Retailers continue to focus their attention on the better performing shopping centres, retail parks and high streets, all of which are boasting negligible vacancy (if any), which in turn is boosting rental growth prospects in these locations.
37 development land transactions totalling more than €167 million completed in the Irish market during the first quarter of 2018. This compares to 28 transactions totalling approximately €104 million completed in the same quarter last year.
Despite pent-up demand for development land in the current market, very little of scale is being traded, which is frustrating for the many end users looking to acquire prime sites at present. CBRE expect several sizeable land parcels and development opportunities to be brought to the market over the coming months, which they expect to be keenly bid.
The recently revised design standards for apartment development have been broadly welcomed in the industry. Coupled with a welcome increase in the volume of planning permissions being granted under the Strategic Housing Development fast-track process, these initiatives should improve momentum in the delivery of much-needed residential development in the medium term. According to CBRE, the one disappointment is that we still don’t have clarity on height.
Core properties in Cork that are offered for sale over the coming months are likely to be keenly bid considering the strength of investor appetite for good provincial investment opportunities over recent months. There is particularly strong demand for prime office investment opportunities and following the successful completion of the Elysian residential investment sale to Kennedy Wilson in recent months, there is also very strong demand for PRS/Build-to-Rent opportunities in the Cork region.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com
About CBRE Ireland
CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate services company with offices in Dublin and Cork. Currently employing over 135 employees, we work with occupiers, investors and developers of office, industrial and logistic, retail, hotel and healthcare property, providing strategic advice and execution for property sales and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services; investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website at www.cbre.ie