CBRE has released their latest bi-monthly report focusing on trends and transactions in each sector of the Irish commercial property market. The property consultants say that the Irish commercial property market has remained active in recent months with encouraging volumes of transactional activity continuing to be recorded in all of the main occupier markets, buoyed by a positive economic backdrop.
CBRE say that prime rents have continued to increase in all sectors over recent months and are firmly on target to reach the year-end forecasts the company issued earlier this year. They also report continued activity in the development land and hotels & licensed sectors of the market in the last two months and expect this to continue into the Summer with a number of high-profile sales due to conclude over the coming months. CBRE say that activity in the investment sector has also been impressive of late and will be boosted by the conclusion of the sale of Blanchardstown Town Centre in west Dublin.
According to Marie Hunt, executive director & head of research at CBRE Ireland, “Investor appetite for Irish commercial real estate remains robust, particularly from institutional buyers who are focussing attention on prime assets. Monetary pricing continues to influence asset pricing in Europe and against this backdrop, Irish real estate, which offers the potential for significant rental growth, remains attractive to institutional investors. However, with deleveraging now firmly in its’ final phase in the Irish market, the pipeline of new investment product is less visible, with many of the assets due to be formally launched for sale over the coming months being relatively small in size compared with the large assets and portfolios that have traded in the last two year period.”
Offices
- In total, 52,442m2 of office take-up was recorded in Dublin in 50 individual lettings in the first three months of the year and activity during April has remained robust. Almost two-thirds of the lettings signed in Q1 in the capital were to Irish companies, which is particularly encouraging with seven of the 10 largest lettings signed in the quarter comprising expansions of existing businesses.
- Many technology companies are focussing primarily on sub-letting opportunities on the basis that this allows them greater flexibility such as securing lease terms of less than 10 years duration which is important to them considering the pace that these companies typically expand at. In other cases, occupiers are committing to short-term leases for now on the basis that there will be greater availability in the market in the medium term.
- There are now a total of 27 office developments under construction in the capital.
- Prime rental values in Dublin have increased again to €619/m² (€57.50/ft²) in recent weeks and are on target to reach CBRE’s forecast of €700/m² (€65/ft²) by year-end. The overall vacancy rate in Dublin is now 7.7% according to CBRE.
Industrial & Logistics
- Take-up of 64,747m2 was achieved in the Dublin industrial market in the first quarter of 2016, which is a strong result albeit down compared to the bumper activity recorded in this sector in 2015. This demonstrates the extent to which the scarcity of modern industrial accommodation in some core locations is impacting on transactional activity at present.
- Although prime industrial rents have increased to approximately €80/m² (€7.45/ft²) in recent months, they have not yet recovered to a level that renders new development viable. As this situation changes, CBRE expect to see some further speculative development activity emerging in this sector later this year.
Retail
- The biggest frustration in the Irish retail property market currently is a severe scarcity of stock in the shopping centres, high streets and retail parks that retailers are specifically targeting. The sheer length of time negotiations are taking is also frustrating, with landlords in general being more selective about the tenants and lease terms they are willing to accept now that the market is showing signs of recovery and the next phase of rent reviews is approaching.
- The retail recovery that first began to materialise in the Dublin market last year is now becoming increasingly evident in secondary and provincial locations, which is encouraging. However, much of the demand for locations outside of Dublin is emanating from a relatively small pool of retailers.
- For the first time in a long time, evidence of premiums and key money is now emerging in the restaurant sector.
Investment
- Total returns in the Irish commercial property market in the year to the end of March 2016 were 23.5% according to MSCI with 2.9% growth achieved in the quarter. This clearly demonstrates that while the Irish investment market continues to significantly outperform other markets, the pace of growth has slowed compared to the exceptional growth achieved in 2014 and 2015.
- With deleveraging activity now winding down, most of the stock coming to the market at present is relatively small lot sizes, which will impact on transaction volumes as the year progresses.
- There has been strong appetite for the various loan portfolios that have recently been offered for sale including Projects Emerald, Ruby and Abbey and CBRE anticipates similar demand for the Project Tolka portfolio which is expected to be launched for sale shortly. However, once these large portfolios have traded, much of the deleveraging activity that has characterised the Irish market for several years will have been completed.
- Prime yields in the Irish market remain stable. However, with investors increasingly focussed on core assets that offer more defensive characteristics, an increase in secondary yields cannot be ruled out as the year progresses.
Hotels
- 14 hotels totalling more than €47.4m sold in the Irish market in Q1 2016.
- There is a depth of demand for all types of hotels around the country from a range of different buyers who are encouraged by tourist numbers and improving hotel performance statistics.
- A number of budget brands including Premier Inn, Motel One, Bloc, Citizen M and Yotel are all reportedly looking for opportunities in the Dublin market considering the prevailing shortages of hotel rooms in the capital.
- Although only one hotel is due for completion in the city in 2016, a large number of planning applications for new hotels have been prepared and lodged in recent months.
Dublin Pubs
- 8 pubs totalling over €9m between them sold in the capital during Q1.
Development Land
- 28 development sites totalling more than €350m sold in the Irish market in the first quarter of 2016. There have been healthy volumes of activity in this sector in recent months with several transactions being completed both on and off market.
- There is a considerable weight of capital chasing development opportunities at present with institutional buyers and listed vehicles particularly active. However, many of the sites that are being offered for sale are not of significant scale, which is frustrating buyers, particularly considering the not insignificant supply demand imbalance in sectors of the economy such as housing.
- CBRE say they are seeing increased appetite for Dublin apartment sites lately despite the fact that apartment development is not yet evident in the capital.
- CBRE also report huge focus on sites for ‘alternative’ uses such as student housing. While there is undoubtedly appetite for additional purpose-built student housing in the Dublin market, CBRE are urging developers to proceed with caution considering the vast number of student housing schemes that are now entering the planning process on the basis that this sector is quite specialised and to a large degree untested in a Dublin context.
