Good Start to 2016 for the Irish Commercial Property Market
Strong activity in all sectors since the start of the year despite global uncertainty and political concerns
Dublin, March 1st 2016 - Commercial property specialists CBRE today released their first bi-monthly report for 2016 focusing on trends and transactions in each sector of the Irish commercial property market in the first two months of the year. The property consultants say that the year has started well in the Irish commercial property market despite recent turmoil on global financial markets, increased focus on the potential implications of BREXIT and political concerns around last week’s Irish General Election.
Click here to download the full report: CBRE | Bi-Monthly Research Report March 2016
CBRE say that shortages of prime accommodation continue to frustrate in the occupier sectors of the commercial property market, most recently in the prime retail and industrial sectors. The property consultants say that there is evidence of more supply coming available in the Dublin office market over recent months, which has eased pressure in this sector to some degree. Meanwhile, CBRE are seeing more signs of development-related activity in all sectors of the market, most notably in the Dublin office and hotel sectors while the appetite for investment in alternative sectors such as purpose-built student housing is also becoming increasingly evident. Activity in the hotel sector also remains strong with considerable domestic and international focus on the prestigious Gresham Hotel in Dublin city centre, which the firm recently offered for sale guiding €80 million.
The first two months of the year have been active in all sectors of the commercial property market. The EU referendum result and the implications if the UK were to leave the EU is creating uncertainty for investors, occupiers, developers and others involved in UK real estate. However, to date, demand for Irish commercial real estate doesn’t appear to have been affected by this particular issue. Similarly, although we expect a number of weeks of political uncertainty following last weeks General Election in Ireland, the outcome is unlikely to have a significant impact on the commercial real estate market locally.
- Continued momentum in the Dublin office market in the first few months of 2016 with several new requirements emerging since Christmas and a number of sizeable transactions currently in active negotiations.
- With the development of several new office schemes now well underway and a number of refurbishment opportunities becoming available, there is finally some light at the end of the tunnel for occupiers seeking office premises in the capital.
- Prime rental values remain steady at approximately €592 per square metre (€55 per sq. ft.) at present. However, this headline rate is expected to increase to €700 per square metre (€65 per sq. ft.) during 2016 as transactions close and new market evidence materialises.
- The biggest frustration for many occupiers at present is the inflexibility of lease terms being offered by landlords in the current market.
- Construction has commenced on more than 120,000m2 of new office accommodation in Dublin city centre since the beginning of the year.
Industrial & Logistics
- The strong volume of transactional activity in the industrial sector over the last 12 months has seriously impacted the supply of modern industrial accommodation in the capital.
- The availability of prime industrial buildings of more than 1,858m2 (20,000 sq. ft.) to either purchase or rent in the capital is less than half of what was available at the same time last year.
- In light of anticipated rental growth (which will render speculative industrial development viable in many instances), there has been a noticeable increase in requirements for prime industrial land over recent months.
- The shortage of modern accommodation will continue to be the biggest challenge for occupiers seeking modern industrial premises around the M50 for the forseeable future.
- Activity has remained consistently strong in the retail property market in Ireland during the first two months of the year. Demand for prime pitches throughout the country is strong although a lack of premises is proving to be a challenge being that many of the better high streets, shopping centres and retail schemes are now at, or close to, full occupancy.
- The strength of demand from existing retailers and new entrants (which was clearly evident at last weeks’ Completely Retail event in Dublin) is in turn fuelling rental growth and leading to the exchange of key money in certain locations.
- The strength of retailer appetite and potential for rental growth in this sector will no doubt be encouraging to the many investors who will be bidding on Blanchardstown Town Centre in west Dublin, which has recently been offered for sale.
- While some investors are delaying decision-making around property investment in the UK market until such time as there is greater clarity on the outcome of the BREXIT referendum this Summer, to date, demand for Irish commercial real estate doesn’t appear to have been affected by this particular issue.
- While it is clearly too soon to guage what impact, if any, global uncertainty has had on the demand for European real estate, increasing credit spreads have started to have an impact on debt pricing. In fact, pricing has already started to stabilise in the Irish commercial property market, with the pace of yield contraction slowing.
- The latest returns from MSCI show that Ireland was once again one of the best performing commercial property markets globally in 2015, having achieved a total return of more than 25% year-on-year. Although 2016 is also expected to be a record year for the Irish commercial real estate sector, returns are unlikely to be quite as strong as in 2015.
- Deleveraging activity is now clearly winding down in the Irish market and as a result, sourcing stock is proving more challenging, with increased focus on asset management and development activity.
- A high volume of single borrower loan sales and a small number of larger granular books are expected to be offered for sale over the coming months.
- Following a particularly active year in 2015 in which 63 trading hotels changed hands and more than 40 other hotel properties were sold as part of loan portfolios in Ireland, 2016 has seen an equally busy start to the year.
- Trading performance in the hotel sector – especially in Dublin and the other main cities - continues to strengthen with year-on-year improvements in measures such as occupancy, average room rates and RevPar.
- The Gresham Hotel in Dublin has just been brought to the market with a guide price in excess of €80 million. The sale of this 323 bedroom Dublin city centre asset (which has planning permission for a further 145 bedrooms) is understandably generating huge interest from both Irish and international hoteliers alike, especially as it offers an exciting international branding opportunity to the ultimate purchaser.
- Demand for prime Dublin pub properties has been particularly strong in the first two months of 2016 with very strong interest in properties offered for sale including Kennedy’s in Drumcondra, Dublin 9, which was guiding €900,000 and which has now gone to best bids. Meanwhile, the sale of the Castle Inn in Rathfarnham has completed in recent weeks for a price in the order of €660,000.
- Against a backdrop of severe undersupply in the residential sector and continued strong demand in the commercial sector, it is perhaps not surprising that the demand for development land has continued unabated so far in 2016.
- There has been a noticeable increase in the volume of land being offered for sale since the beginning of the year with many of these sites emanating from various loan portfolios traded over the last number of years. Transaction volumes in Q1 2016 in this sector are therefore expected to be considerably stronger than in the same period last year. Demand for sites in the commuter belt of Dublin is particularly strong at present.
- With development plans at various stages of adoption in the four Dublin local authority areas at present, it is likely to be some time before recent site sales translate into the delievery of new supply in the capital.
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.