Transactional Activity In The Irish CRE Market Expected To Increase After Slow Start To 2017
Dublin, March 1st 2017 - Commercial property specialists CBRE today released their first bi-monthly report for 2017 focusing on recent trends and transactions in all sectors of the Irish commercial property market. The property consultants say that momentum has been slow to build in the commercial real estate sector during the opening months of 2017 with few large assets launched for sale and not a huge volume of transactions being completed during January and February. However, CBRE say that is normal for the time of year and masks considerable activity behind the scenes, particularly on the development front. They believe that the bulk of transactional activity in many sectors of the market in 2017 will occur in the second half of the year as opposed to the first six months.
“Appetite for prime investment opportunities in the Irish market has intensified noticeably over recent months with international core capital remaining active buyers, which could actually lead to some further hardening in yields for prime high street and prime office assets in due course. However, a heightened perception of risk has negatively impacted demand for secondary assets of late, which could have the opposite effect on pricing for such assets as the year progresses. The occupier markets continue to perform well, buoyed in particular by the strength of continued employment generation in the Irish economy. Worthy of particular mention is a notable increase in active requirements for office accommodation in Dublin over recent months with several mandates in play at present including some that are specifically Brexit-related. Once Article 50 is officially triggered, demand is expected to escalate further.”
Despite a dearth of transactional activity since the beginning of 2017, there has been a notable increase in demand for office accommodation over recent months with several new requirements having been activated since Christmas.
Occupiers with active requirements for office accommodation at present include Facebook, AIB, IDA, New Relic, Allergan, Eversheds, Indeed, WeWork and Huawei. Many of these requirements are unlikely to translate into completed leasing transactions until at least the second half of this year.
Buoyed by a healthy pipeline of demand, Ballymore Oxley has now confirmed plans to commence construction on three further office blocks at their Dublin Landings scheme in Dublin’s north Docklands, delivering an additional 30,679m2 (330,000 sq. ft.) of office accommodation by end 2019.
Prime headline office rents in Dublin are currently steady at approximately €673 per square metre (€62.50 per sq. ft.) while there has been some upward pressure on prime rents in the suburbs of the city over recent months.
There are now 27 office schemes under construction in Dublin city centre, totalling more than 360,000m2 between them with 20% of this stock already pre-let. CBRE don’t expect to see a large number of new planning applications for office accommodation being lodged from this point forward, considering the volume of office stock that is currently under construction in the capital and the number of schemes with a grant of planning that can be delivered if demand materialises.
Industrial & Logistics
The shortage of modern stock is leading to some strengthening of landlord’s terms in lease negotiations in the industrial and logistics sector of the market.
There have been some strategic industrial land acquisitions completed in recent months.
Prime rents in the industrial and logistics sector are now in the order of €94 per square metre but are expected to increase by almost 14% during 2017 at which point development will be viable.
Dublin ranked 3rd in the Top 5 European data centre markets last year having achieved higher volumes of data centre take-up than Frankfurt and Amsterdam. CBRE have witnessed continued strong demand for data centres since the beginning of the year and expect this trend to continue due to a number of favourable economic, political and policy factors.
By virtue of the fact that the industrial sector is anticipated to generate the highest rental uplifts in the Irish commercial property market in 2017, there has been a notable increase in investor appetite for industrial investment opportunities, particularly those that offer scale.
Retail occupier interest for prime pitches remains strong with particularly strong appetite from food & beverage occupiers.
An increase in residential construction (albeit from a relatively low base) has started to benefit the retail sector of the property market, with improved occupier interest inretail park schemes being reported over recent months.
Unlike other sectors of the market which are experiencing an increase in development activity, most projects that are currently underway in the retail sector of the property market comprise extension and refurbishment programmes as opposed to new builds.
- CBRE are urging Government to start formally tracking online sales activity as current measures of retail spending in the Irish economy fail to capture a significant proportion of retail activity by virtue of excluding online purchases. With concerns about leakage of retail spend to Northern Ireland and to UK websites as a result of Sterling weakness continuing to prevail, the property consultants say that the need to have access to comprehensive data on Irish consumer spending patterns is becoming more pressing.
According to the latest MSCI Irish Property Index, total returns in the Irish commercial property market reached 12.4% in 2016.
The pace of total returns has slowed in each of the last eight quarters as the Irish CRE market reverts to more normalised trading levels. CBRE say that last year’s record €4.5 billion of investment spend is unlikely to be matched in 2017 now that deleveraging activity has slowed and in the absence of a significant number of trophy sales, which were prevalent in 2016.
CBRE say that the biggest frustration in the market at present is the scarcity of prime product to satisfy investor appetite considering the dearth of opportunities formally offered for sale during January and February. However, they expect this to change over the coming months as we move towards the traditional selling season and momentum picks up. The property consultants say they have noticed an increase in the number of private investors bringing assets to the market for sale over recent months which will hopefully alleviate pressure to some extent.
- CBRE say that investors the world over are becoming increasingly agnostic about what specific sector they are targeting and focussing more on long-term income generation potential in a myriad of new sectors such as PRS, purpose-built student accommodation, hotels and healthcare – a trend that CBRE say is definitely being witnessed in an Irish context.
With a record 66 hotel properties having traded in 2016 (excluding those that traded as part of loan portfolios or as investments), transactional activity in the hotel sector during the first two months of 2017 has been low in comparison. Indeed, the 104 bedroom D Hotel in Drogheda, Co. Louth and the 30 bedroom Clifton Court Hotel in Dublin city centre are two of only a small number of hotel properties that have changed hands in Ireland so far this year.
CBRE say that the market is very busy behind the scenes as several assets are being prepared for sale and other sales processes are being conducted off-market. However, the property consultants say that the fact that few hotel properties have been formally launched for sale so far this year is frustrating considering the weight of capital chasing opportunities at present.
Although there are a large number of hotel schemes with a grant of planning permission, getting these projects on site continues to prove challenging due to a scarcity of development funding. CBRE say that this seems counterintuitive considering the demand for hotel accommodation in cities such as Dublin, Cork and Galway. As a result, the property consultants expect to see specialist lenders focussing more intently on funding opportunities in this sector during 2017. They also expect to see increased evidence of forward-funding as the year progresses.
- It now appears that only approximately 200 new bedrooms are due to come on stream in the capital during 2017. CBRE say that it will therefore be 2018 before there is a meaningful improvement in supply in this sector with between 1,200 and 1,500 bedrooms scheduled to complete and open in Dublin next year.
Although several infill development sites continue to sell (some of which are trading off-market), there are very few sizable land parcels being formally marketed. Where land is coming available, there is strong demand, particularly for well-located sites that have viable planning permissions.
There is particularly strong demand for residential sites in Dublin’s commuter belt, with developers encouraged by an increase in mortgage applications and the volume of sales being recorded at various new home scheme launches over recent months. Specialist operators in the PRS and student accommodation sectors are particularly active at present. There is also good demand for well-located industrial land along major road networks.
RTE are expected to shortly launch the sale of approximately 5 acres at their Montrose campus in Dublin 4, which CBRE say is certain to generate strong interest. They expect to see a number of other semi-state organisations making decisions to bring landholdings to the market over the course of the next 12 months considering the current appetite for well-located sites in good locations.
CBRE say that that despite an increase in new home delivery, completions remain well below required volumes. However, they say this is a step in the right direction and will be boosted by the delivery of much-needed PRS accommodation in due course, which has the ability to deliver scale in a relatively short timeframe.
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.