Irish Commercial Real Estate Sector Approaching Late Cycle But Expected To Remain Healthy In 2018
Dublin, 16h January 2018 – Commercial property specialists CBRE today released their OUTLOOK 2018 annual report containing their final year figures for transactional activity in each sector of the Irish commercial property market in 2017 and their predictions for each sector in the year ahead.
The property consultants say that the prospects for the Irish commercial property market remain very promising although economics, tax and politics will continue to have a huge bearing on the trajectory of the market over the next 12 months.
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Speaking at the launch of the 29th edition of their annual Outlook report at the RDS, this morning, Enda Luddy, Managing Director at CBRE Ireland said,'
“2017 was a very active year for the Irish commercial real estate sector although returns and transaction volumes returned to more normalised levels following three years of out-performance. The occupier markets continued at pace with the office sector being the star performer. The bulk of leasing activity in the office market in the capital emanated from the expansion and relocation of existing occupiers with Brexit providing a welcome additional layer of demand during the year. Indeed, the volume of leasing activity accounted for by UK occupiers more than doubled year-on-year”.
Meanwhile, in commenting on their expectations for the Irish commercial property market in 2018, Marie Hunt, Executive Director & Head of Research at CBRE said,'
“The Irish CRE market is now approaching late cycle in many respects. However, occupier activity remains robust, development is controlled, the market is priced attractively compared to the rest of Europe and there are still considerable opportunities for both occupiers and investors alike. In addition to demand for office and industrial & logistics opportunities, we expect to see continued flows of capital into alternative sectors over the course of the next 12 months with particularly strong demand for residential investment opportunities in Dublin, considering the stable long-term income streams this sector can deliver. Alternative sectors will become increasingly mainstream”.
- 218 investment transactions of greater than €1 million were completed in the Irish market during 2017, totalling more than €2.65 billion between them. The largest investment transaction completed in the year was the sale of The Square Shopping Centre in Tallaght, Dublin 24.
- The likelihood is that transactional activity in 2018 will be broadly similar to last year’s outturn, as the market returns to a more normalised level of trading.
- CBRE expect to see continued appetite for prime investment opportunities in the Irish market in 2018 with investors increasingly focused on good income-generating opportunities in the office, industrial & logistics and residential sectors in particular. The property consultants also expect to see some further new entrants to the Irish investment market this year.
- 36 hotel sales concluded in the Irish market in 2017 totalling over €405 million between them following 3 years in which more than 60 hotels changed hands each year. A further 5 hotel properties totalling almost €160 million sold as investments during the last 12 months.
- Unlike 2017, CBRE expect to see some Dublin hotels coming to the market during the 12 months. If this materialises, the property consultants believe we could see up to €500 million of Irish hotels changing hands in 2018, with a sizeable proportion of these transactions occurring off-market.
- 20 Dublin pubs were sold in 2016, totalling more than €22 million between them. This was a lower volume of pub sales than anticipated as improved trading conditions made some vendors reluctant to sell.
- Office take-up of more than 331,000m2 was achieved in Dublin in 2017 in 237 individual transactions. 131 of the transactions in 2017 were to Irish companies while 54 were to US companies and 30 were to UK companies. The volume of office space leased by UK companies more than doubled year-on year.
- Considerable expansion activity is expected to support another strong year of take-up in the Dublin office market in 2018 following a record performance last year, boosted by a number of Brexit-related moves.
- Headline rents reached €700 per square metre by the end of last year and CBRE expect that headline rents will remain relatively stable at this level throughout 2018. There may, however, be some exceptions where small suites or superior buildings achieve premium rental values. According to CBRE, the best prospects for rental growth in the office sector in 2018 will be in buildings in secondary and provincial locations.
- CBRE expect occupiers in the technology and financial services sectors to dominate again in 2018 with an increasing proportion of Dublin leasing activity likely to occur in the suburbs of the city as occupiers move some functions of their business to more cost-effective locations.
- As the year progresses, the property consultants expect a growing number of Brexit-related mandates to solidify, with occupiers who heretofore have been exploring options, now committing to specific buildings.
- CBRE expect to see increased demand for flexible office accommodation in 2018 having seen occupiers such as WeWork signing their first leases in the Dublin market during the last 12 months and almost 5% of office take-up last year being to flexible & co-working tenants.
Industrial & Logistics
- Industrial take-up of almost 250,000m2 was achieved in Dublin in 2017 in 162 individual transactions down almost 20% on the previous year.
- Last year was characterised by severe shortages of modern industrial and logistics stock to satisfy demand, which in turn fuelled rental growth and impacted negatively on take-up volumes. CBRE expect that this will alleviate somewhat in 2018, as new supply finally starts to materialise. The industrial & logistics sector will firmly move into the development phase of the cycle during 2018 with new industrial and logistics facilities due to be delivered and a corresponding uplift in transactional activity anticipated.
- Prime industrial rents in the Dublin market have potential to increase by as much as 11% in 2018.
- The retail sector performed well last year with consumer sentiment, retail sales and footfall all broadly positive. CBRE say there was continued strong demand for stores on the best retail high streets, shopping centres and retail parks throughout the country. Transactional activity in 2017 largely emanated from a relatively small pool of retailers. There were however several notable transactions negotiated with new entrants to the Irish market.
- With retailers increasingly focussing attention on a relatively small pool of core locations and schemes, we expect to see rental growth in the most sought-after streets and schemes but rents remaining relatively flat elsewhere during 2018 as the sector reacts to structural changes.
- A scarcity of premises in the most highly sought-after locations is likely to continue to frustrate retailers in 2018. However, there are now signs of new retail supply coming on stream, both in terms of new development commencing and new planning applications being lodged, which will help alleviate this pressure. All the M50 shopping centres on the outskirts of Dublin (including The Square, which traded last year) have, or are in the process of obtaining, planning permission to facilitate extensions.
- 137 development land sales were completed in 2017 totalling more than €750 million between them.
- With a clear need to release more land for sale, now is the optimum time for landowners to bring sites to the market and capitalise on the depth of demand that prevails for well-located zoned and serviced sites.
With room for some further yield compression and above average rental growth, CBRE expect to see strong appetite for prime opportunities that come to the market in the Cork market during 2018. The property consultants expect to see increased evidence of development activity across a range of sectors in the Cork market over the next 12 months.
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
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