Dublin,
01
September
2016
|
10:12
Europe/Dublin

Irish Commercial Property Market Autumn Selling Season Kicks Off In Earnest

Market gearing up for a busy season with several large transactions currently being finalised and a number of assets being prepared for sale

Dublin, September 1st 2016 - Commercial property specialists CBRE today released their latest bi-monthly report for 2016 focusing on recent trends and transactions in all sectors of the Irish commercial property market as the traditonally busy Autumn selling season officially commences.

Click here to download full report: CBRE Ireland | Bi-monthly Research Report September 2016

Click to view CBRE Ireland | Bi-Monthly September 2016 Video Commentary by Marie Hunt

Marie Hunt, Executive Director and Head of Research, CBRE Ireland
A busy Autumn selling season is in prospect in the Irish commercial property market with several large transactions currently being finalised and a number of notable properties expected to be launched for sale over the coming weeks. To date, Brexit concerns appear to have had minimal impact on the Irish commercial property market with values holding firm regardless and demand for prime investment opportunities having increased as Euro-denominated funds have increased real estate allocations. Occupier activity is continuing at pace across all sectors of the market, which is encouraging investors. We have also seen an increase in Brexit-related enquiries in the office sector over recent months.
Marie Hunt, Executive Director and Head of Research, CBRE Ireland

According to CBRE, there has been an increase in the number of enquiries from potential occupiers looking at the feasibility of locating some operations in Dublin following the surprise Brexit referendum result on June 23rd. However, the property consultants say that most of these enquiries are still quite preliminary scoping exercises with any increase in transactional activity emanating purely as a result of Brexit unlikely to materialise in the short term. They say that potential occupiers are comforted by the visibility on future office supply in the capital considering the number of office schemes that are currently under construction or at various stages of the planning process, which can be delivered if required. CBRE say that the onus is now on the Government to ensure that Dublin has sufficient housing and other necessary infrastructure to facilitate any increase in occupier demand that may materialise as a result of Brexit in due course. In this regard, they also urge Government to review personal taxation rates, which they say threaten Ireland’s competitive position when pitching against other European capitals for office location decisions.

Offices

  • There was some slowdown in the volume of office leasing activity concluded in Dublin during the traditionally quieter months of July and August, which is normal for the time of year. However, a number of notable transactions have signed or are due to sign during Q3, which will provide a welcome boost to the almost 90,000 square metres of take-up recorded in the first half of 2016.
  • There has been continued activity from a planning perspective over recent months with several development or refurbishment schemes having either lodged or obtained planning permission during the Summer months. An increasing proportion of this activity is now occurring in suburban locations.
  • There is now more than 378,000m2 of new office stock under construction in the city centre, of which only approximately one fifth is due for completion in 2016 (44% of which has already been pre-let).
  • Prime headline office rents remain stable at €619 per square metre (€57.50 per sq. ft.) although it is expected that prime headline rents will shortly breach the €646 per square metre (€60 per sq. ft.) which is now being quoted for a number of prime schemes.
  • Occupiers that are in a position to sign pre-lettings will potentially have the opportunity to secure more favourable rental terms.

Industrial & Logistics

  • A severe shortage of modern stock in core locations continues to impact on transaction volumes in the industrial and logistics sector.
  • Demand for modern stock remains strong across a range of different sectors although occupiers that mainly trade with the UK have understandably put some decisions on hold recently until such time as there is more clarity on the longer term implications of Brexit. Some occupiers that are involved in import/export businesses have been particularly affected by the weakening of Sterling over recent months and this is likely to continue to impact on activity in this sector over the coming months.
  • Until such time as prime headline rents rise to a point where new development is viable, supply in this sector is expected to remain constrained with only a small number of developers tentatively proceeding with speculative industrial development at present.
  • Prime industrial rents are stable at €85 per square metre and remain on target to reach CBRE’s forecast of €94 per square metre by year-end.
  • The supply of industrial investment properties has improved a little of late with a number of industrial investments transacting in recent months, albeit most of these transactions have been relatively small. Recent investment transactional evidence suggest that prime industrial yields in Dublin are now in the order of 5.5% having improved by 25 basis points over the Summer.

Retail

  • To date, Irish consumers don’t appear to have curtailed spending in the aftermath of June’s surprise Brexit referendum result although there has been a noticeable increase in cross-border shopping in some border towns in the last two months as a direct result of the weakening in Sterling that has materialised as a result of the Brexit vote.
  • A shortage of premises on some prime streets and schemes continues to frustrate potential occupiers. There has been particularly strong demand for premises in Cork of late, which is leading to a reduction in vacancy on many of the city’s prime streets with particular demand from food and beverage retailers.
  • In Dublin city centre, there is concern about the disruption that ongoing light rail works may have on footfall patterns as retailers gear up for their busiest trading period in the run up to Christmas.

Investment

  • Total returns in the Irish commercial property investment market increased by more than 3% in Q2 2016 with rolling annual returns to the mid-year point having moderated somewhat to approximately 19.5%.
  • The fact that Irish 10 year bond yields have declined in the aftermath of the Brexit referendum has actually made investment in Irish commercial real estate more attractive on the basis that prime property yields have remained steady and the arbitrage between bond yields and property yields is even more compelling than it was earlier this year.
  • To date, the Brexit referendum result has had no discernible impact on the appetite for Irish commercial property investments. If anything, it has boosted the volume of enquiries for prime real estate with several Euro-denominated funds having increased their capital allocations of late.
  • Pricing remains steady at the mid-year point although as previously indicated, investors are increasingly focussed on core assets, which suggests that there may be some softening in pricing for secondary assets in the Irish market as the year progresses.
  • Given the lack of core office investment opportunities and the scarcity of debt financing, there is likely to be increased focus on forward-funding transactions as well as investment in alternative sectors such as purpose-built residential rental schemes and student accommodation, which are generally less prone to cyclical fluctuations.

Hotels

  • Activity in the hotel sector of the market continued at pace throughout July and August. Although no new hotels were formally launched for sale in the period, work continued on preparing hotel properties for sale in the Autumn while a number of transactions proceeded to final exclusivity stage in recent weeks including the Doubletree by Hilton in Dublin 2 and The Gresham Hotel in Dublin 1.
  • More than €400 million of Irish hotel transactions are due to sign before year-end and CBRE say that it now looks likely that last year’s record transactional activity (€710 million) will be matched, if not exceeded in 2016.
  • CBRE say that considering the severe shortage of hotel rooms in the capital, it is frustrating to see so many proposals to provide much-needed hotels being appealed by third parties and in some cases being refused planning permission.
  • Recent forecasts from STR predict continued improvements in Occupancy, RevPar and Average Room Rates in the Irish hotel sector over the next few years.

Dublin Pubs

  • Transactional activity in the Dublin pub sector was quite subdued during the Summer following the sale of 13 pubs totalling almost €18 million in the first half of the year. This is partly due to the time of year but also influenced by the scarcity of good quality premises being offered for sale at present. CBRE say that many publicans are now working with new debt providers and trade has improved with the result that there is less pressure to bring pub properties to the market than previously.
  • There has been a notable increase in the number of pub refurbishment projects of late.

Development Land

  • The expectation is for a busy Autumn in the development sector with many investors now focussing on development and forward-funding opportunities considering the severe shortages that exist in some sectors of the property market.
  • The expectation is that development viability will improve and developers will have confidence to proceed with much-needed development leading to a visible increase in output from this point forward. CBRE welcome the publication of the Government’s Action Plan for Housing and hope that this will be implemented in conjunction with further supply side initiatives in the forthcoming Budget.
  • Many of the transactions that are underway in the developnment land market are being conducted off-market and this is likely to continue to be a trend for the remainder of the year.

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.