Entering The Final Straight Of Another Exceptionally Busy Year In The Irish Commercial Property Market
Dublin, November 1st 2016 - Commercial property specialists CBRE today released their last bi-monthly report for 2016 focusing on recent trends and transactions in all sectors of the Irish commercial property market as we enter the final straight of what the property consultants say has been another exceptionally busy year for the sector.
The Autumn selling season in the commercial property market in Ireland proved every bit as busy as we had anticipated with a large number of property assets formally offered for sale over recent months and healthy levels of activity being recorded in all occupier market sectors. In most sectors, transaction volumes were only stymied by a shortage of product to match high volumes of demand. Irish commercial property returns continued to improve in Q3 albeit at a slower pace than experienced in previous quarters as had been anticipated. Rental growth continues to materialise across all sectors with prime office, retail and industrial rents all rising further in recent months and now at, or close to, levels forecasted earlier in the year.
According to CBRE, recent changes to the tax code in the Finance Bill, which has created a new type of fund to be known as an Irish Real Estate Fund (IREF) has unfortunately damaged Ireland’s reputation with many international investors who have played such a vital role in the recovery of the Irish real estate sector in recent years. CBRE also say that the tax changes will also negatively affect the price that certain funds will pay for Irish real estate assets going forward.
Office take-up in Dublin in the first three quarters of 2016 reached 172,377m2 (1.85 million sq. ft.), which is on par with annual average take-up in the capital over the last 10 years, demonstrating the strength of activity in this sector during 2016, with several large transactions signed in Q3 in particular. A number of transactions are due to sign in Q4 which will boost take-up further.
With several requirements active and new enquiries materialising all the time CBRE are confident that activity will be sustained in 2017 with the second half of the year expected to be particularly busy. The firm has continued to see Brexit related queries in recent months although they believe that any opportunities that arise due to dislocation as a result of Brexit won’t be immediate.
Despite speculation that Dublin doesn’t have enough office stock to cater for relocations that may occur on the back of Brexit, CBRE research actually shows that there is 372,637m2 (4 million sq. ft.) currently under construction in 29 individual schemes of which 22% is currently reserved. This will add approximately 10% to the stock of office accommodation in Dublin. A further 433,159 square metres (4.6 million sq. ft.) in 37 individual schemes has a grant of planning permission and could also be commenced if required. The visibility on potential delivery should give comfort to potential occupiers that Dublin is more than capable of providing sufficient high quality office accommodation if required.
Prime headline office rents in Dublin rose again in recent months and currently stand at €645 per square metre (€60 per sq. ft.).
Industrial & Logistics
Although there was very strong take-up in the Dublin industrial market in Q3 and there are a number of transactions in final stages of negotiations at present, which should boost Q4 take-up in the sector, annual take-up for 2016 is still likely to be down year-on-year. This is reflective of a severe scarcity of modern industrial accommodation in core locations, as opposed to a weakening in demand.
Prime industrial rents have risen again and currently stand at approximately €94 per square metre. CBRE say that now that prime rental values are close to reaching a level that justifies new development, they expect to see an increase in planning applications being prepared and lodged for new industrial schemes. This will deliver some much-needed new supply in 2017 and beyond.
- Although retail sales continue to increase, June’s unexpected Brexit vote and the subsequent devaluation of Sterling has affected consumer sentiment and resulted in some trade leakage online and to Northern Ireland over recent months. This has been particularly felt in some of the border towns and counties.
- Competition is particularly strong amongst food & beverage providers and retailers in the beauty sector with several new entrants looking to open new stores in 2017.
- With strong competition for the best pitches, prime retail rents continue to increase with Zone A rents on Grafton Street now at approximately €6,300 per square metre and prime Zone A rents on Henry Street now at approximately €4,500 per square metre.
- CBRE expect to see a flurry of activity centred on the Black Friday and Cyber Monday sales promotions, which have become more prevalent in the Irish market in recent years.
- According to the latest MSCI Irish Property Index, total returns in the Irish commercial property market increased by 2.1% in Q3 2016, bringing the year-to-date return to 8.5%.
- The Autumn selling season was particularly busy with more than €600 million of Irish investment assets formally launched for sale since September, the vast majority of which extended to lot sizes of between €20 million and €50 million. Considering that German investor BVK have now been selected as the preferred bidder on Liffey Valley Shopping Centre in West Dublin (which had been guiding in excess of €600 million in its own right), 2016 could prove to be a very strong year in terms of investment turnover if some of these transactions complete before year-end, with €3.18 billion invested in income-producing investments with a value of more than €1 million in the first nine months of 2016 alone.
- CBRE say that the likelihood is that investment spend will decline from this point forward however, not least because of recent tax changes announced in the Finance Bill, which the property consultants say has done huge reputational damage for investment into Ireland.
- Prime yields remain stable across all sectors with prime high street retail trending at 3.25%, prime offices trending at 4.65% and prime industrial trending at 5.5%.
37 Irish hotel transactions - with a capital value of €283 million - completed in the Irish market in the first nine months of 2016 and with a number of significant transactions due to formally close before year-end, the total spend for 2016 could well reach similar volumes to the record €710 million spent on hotels in Ireland last year.
- CBRE say that transaction volumes would be higher again if sufficient hotel product was available as demand for hotel opportunities – in Dublin and provincial Ireland – remains very strong from both Irish and international hoteliers alike.
A shortage of product is also a prevailing feature in the Dublin pub market at present with very few pubs being offered for sale despite considerable appetite for well-located premises. Spend has therefore been somewhat disappointing. According to CBRE research, a total of 23 pubs sold in Dublin during the first 9 months of 2016 totalling approximately €28 million between them. A further 13 pubs totalling €22 million are currently sale agreed although not all of these transactions are likely to be closed by year-end.
CBRE Research shows that almost €640 million was transacted in development land sales in the Irish market in the first three quarters of the year in 75 individual land sales, which suggests that the volume of land sales in 2016 is on target to match last years bumper €770 million annual spend figure.
The property consultants say that there is a sense that development activity will begin to improve over the coming months, albeit from a relatively low base. In their view, the decision to focus on demand-side measures in the Budget and forego supply-side measures such as a cut in the rate of VAT on new home construction, was a missed opportunity as there is no guarantee that demand-side measures focussed on one small cohort of buyers will on their own stimulate development activity to the extent that is required to match underlying demand.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), 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 2016 revenue). The company has more than 75,000 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.
In Ireland, with offices in Dublin and Belfast, CBRE is the country’s largest commercial real estate services company, now employing over 165 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, debt advisory, project management, consultancy, business rates and compulsory purchase, valuations and research. Please visit our website at www.cbre.ie or www.cbre.ie/ni.