30
April
2013
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00:00
Europe/Dublin

More prime Irish commercial real estate needed to satisfy potential buyers in some sectors

CONTACT: Marie Hunt – 00 353 1 6185543 / 00 353 87 2727115 or marie.hunt@cbre.com

Dublin, 1st May 2013 – Commercial property consultants CBRE today released their May bi-monthly report, focussing on current trends in all sectors of the Irish commercial property market. The property consultants say that there is a lack of prime properties for sale to cater for the current volume of demand in many sectors. The CBRE report also contrasts conflicting market conditions in the Republic and Northern Ireland, with transaction volumes extremely low in the North during the first few months of 2013 in contrast to two consecutive quarters of strong transaction volumes in the Republic and improving prices in the Dublin market over recent months.

Office & Industrial Market

  • There has been an increase in demand for office premises in both the city centre and the suburbs of Dublin over recent months with overall demand for 192,000m2 of office accommodation currently outstanding. However, many recently activated office requirements are relatively small in size with many extending to less than 500m2. There are some larger office requirements but these are mainly long-term projects.
  • On the basis that many buildings are currently trading at less than replacement cost, a number of office and industrial occupiers are purchasing buildings as opposed to leasing them.
  • Stakeholders in the Docklands region of Dublin city have been focussing attention on the recently published draft Strategic Development Zone (SDZ) for Dublin Docklands, which remains on public display until May 10th, on the basis that this will ultimately dictate the quantum, height and design of buildings in this location going forward.
  • The fact that the Grade A office vacancy rate in the prime Dublin 2/4 Central Business District is now as low as 6.2% is causing some concern. However, despite the emerging scarcity of Grade A accommodation and the fact that prime office rents are now showing signs of improvement, CBRE believe that it will be some time yet before speculative development proves feasible in the Dublin market.
  • There has been continued activity in the industrial sector over recent months with several acquisitions being activiated. In the Dublin market, close to 62,000m2 of industrial sales and lettings were signed in the first quarter of 2013 - the highest volume of take-up achieved in this sector since Q1 2008.

Retail Market

  • There is currently a very notable disconnect between activity in the retail sector of the Irish economy and the retail property market. The Central Statistics Office (CSO) recently confirmed that retail sales in Ireland fell by 1.9% on a monthly basis to the end of March while retail sales declined 1.6% on an annual basis. However, this is at odds with continued activity in the retail property market with several bidders emerging for many of the prime properties that have come to the market around the country in recent months.
  • There is particularly strong demand for well-located Dublin retail properties, with several properties achieving more than the guide price where there are a number of interested parties competing.
  • Restructuring specialist Hilco recently purchased some of HMV’s assets in the UK. However, CBRE say that rumours that this company are in negotiations with landlords with a view to re-opening a number of their 16 Irish stores don’t appear to be correct on the basis that transactions are already underway with new retailers on a number of these units. Indeed, they say that Kilkenny Design have reportedly agreed terms to lease the former HMV unit at The Pavilions shopping centre in Swords in north Dublin and negotiations are at an advanced stage on a number of the other HMV stores around the country including their store on Grafton Street in Dublin and their store in the Crescent Shopping Centre in Limerick.
  • Vacancy rates on many high streets around the country increased in the last six month period but CBRE expect them to fall again in the medium term as new tenants emerge for many of the vacant units.
Investment Market
  • The fact that the IPD income return from Irish commercial property is now more than 10% on an annualised basis continues to attract a range of new investors to the Irish market. In addition to Irish and international institutional buyers seeking to purchase income-producing assets, CBRE have witnessed interest from some new UK and German funds over the last number of months who have been encouraged by improving economic prospects.
  • Considering the extent of deleveraging that ultimately still has to occur in Ireland, CBRE says it is frustrating that the challenge at the moment is finding an adequate supply of prime properties to satisfy current volumes of demand for prime Irish real estate. While transactional activity over recent quarters has been very strong, the property consultants say that it is still too difficult to forecast the likely outturn for the year until such time as there is clarity on what assets or loan sales are likely to come on the market over the coming months.
Development Market
  • Although we are still some time away from speculative development in most sectors, CBRE contend that the volume of land sales currently underway suggests that a number of stakeholders are beginning to engage in pre-planning discussions with a view to lodging planning applications in the short to medium term.
  • With several bidders emerging for some good sites that were offered for sale in the first few months of 2013, the property consultants say that the challenge is to service the demand for quality residential and commercial sites.
  • Although there are some different categories of purchasers emerging,almost all purchasers in the development sector of the market are cash buyers.

Hotels & Licensed Market

  • The strong activity in the hotel and licensed property market has not been reflected in the number of transactions completed so far in 2013. However, there are quite a few hotel and pub properties currently under offer and close to being signed.
  • There are not enough good quality hotels being released for sale to capitalise on the current volume of demand from international hotel investors, many of whom have been disappointed underbidders on hotels that have come to the market over recent months.
  • Dublin hotel performance has improved for 31 consecutive months now.


Northern Ireland Market
  • There is a marked contrast between the increased volume of transactional activity and improving market conditions in many sectors of the commercial property market in the Republic over recent months and the comparatively depressed conditions in the Northern Ireland property market. Although investor appetite remains relatively robust, the lack of prime properties being offered for sale to satisfy this demand has stymied transaction volumes with no investment transactions over £1 million in value recorded in Northern Ireland in the first few months of 2013.
  • There has been a lot of interest in the Scottish Mutual office building in Belfast, which was launched for sale in recent months, with a range of different buyers including hotel operators and local investors bidding higher than the asking price of £1.75 million. Similarly, the Linen Green investment in Belfast, which has recently come onto the market, has already generated more than 20 expressions of interest.There is therefore a clear need to release more assets for sale in this market to capitalise on the volume of investor interest for good opportunities.
  • The volume of properties that are released for sale across Northern Ireland over the next two month period will ultimately dictate the outturn for the year considering the length of time it is taking to conclude transactions at present.
  • The news that a decision to enable Northern Ireland to set its own rate of corporate tax has now officially been put on hold until after the Scottish Independence elections in September 2014 has been met with widespread disappointment considering the impact this decision will potentially have for the local economy and its property market.

According to Enda Luddy, Managing Director, CBRE, Ireland “The last few months has seen continued activity in all sectors of the Irish commercial property market although demand is strongest for prime properties in Dublin, with a clear divergence in performance and transaction volumes between prime and secondary assets. A theme that is coming through from many sectors of the market, particularly investment, hotels and development land, is the lack of prime property being released for sale to satisfy the current volume of demand. This trend is also evident in the Northern Ireland market. Although the Northern Ireland property market remains depressed relative to the Republic, there is international demand for prime investment properties in the North but there are very few assets actually being offered for sale, which is frustrating would-be purchasers”.

Marie Hunt, Executive Director and Head of Research, CBRE Ireland added “The Capital Gains Tax (CGT) waiver introduced by the Irish Government in Budget 2011 is not hugely relevant to international investors who are for the most part already investing through tax efficient structures but it has significant resonance for domestic investors and land purchasers. However, considering the length of time it is taking to conclude transactions in the current climate, it will be necessary to get assets onto the market sooner rather than later to ensure that the potential purchasers have transactions completed by year-end when this CGT waiver is due to expire”.

Ends

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 (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. 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 110 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, valuations and research. Please visit our website at www.cbre.ie or www.cbre.ie./ni




CBRE | Bi-Monthly Research Report May 2013