CBRE today released their September bi-monthly report focusing on recent trends and transactions in all sectors of the Irish commercial property market as the busy Autumn selling season officially commences. According to the report, activity continued in each of the occupier markets over the Summer months with several transactions having gone to legals during July and August in the office, retail, industrial and hotel sectors of the market.
According to Marie Hunt, Executive Director & Head of Research at CBRE Ireland, “Most of the activity in the market during the traditionally quieter Summer months was getting transactions across the line and preparing assets that will be offered for sale over the coming months. September marks the beginning of the most active selling season in the Irish commercial property market and a busy couple of months is now in prospect. The biggest challenge continues to be a shortage of stock to satisfy the volume of domestic and international demand for good investment opportunities although this pressure will ease over the coming months as new product is released for sale. Prime yields are expected to tighten as new transactional evidence materialises over the course of the Autumn. Interestingly, there has been a notable increase in investor appetite for investment opportunities in regional cities such as Galway and Cork over recent months although both cities are also constrained by a shortage of investment stock”.
- Following a record first half to the year in which more than 150,000m2 of office accommodation was signed in the Dublin market (of which 27% comprised pre-lettings), several leasing transactions progressed to legals during July and August. This bodes well for another strong quarter of office take-up in Dublin in Q3 with a significant proportion of these transactions occurring in the suburbs of the city.
- Although few new requirements materialised in recent months, this is symptomatic of the time of year and some sizable new office requirements are expected to be activated in the Autumn.
- As the appetite from occupiers for flexibility gathers pace, CBRE are beginning to see greater demand for flexible office solutions and co-working space – a trend the property consultants expect to escalate. In recent months, providers such as Huckletree, Regus and Iconic Offices have expanded their footprint in the Dublin market and CBRE expect the well-known provider Wework to establish a presence in the Dublin market in due course.
- There has been a notable increase in interest in forward funding opportunities since the beginning of the year and we are likely to see some new forward funding transactions announced over the course of the coming months.
- Prime office rents in Dublin remain stable at €673 per square metre (€62.50 per sq. ft.). Meanwhile, prime office rents in Cork are in the order of €312 per square metre (€29 per sq. ft.).
Industrial & Logistics
- Having achieved take-up of more than 120,000m2 during the first half of 2017, activity in the industrial sector in Dublin continued throughout the Summer months despite the severe supply demand imbalance that continues to prevail in this sector. There has been an increase in Brexit-related enquiries in this sector over recent months.
- Prime rents in the industrial sector have risen 6% in the first half of 2017 and are now in the order of €99.50 per square metre (€9.25 per sq. ft.). These rental levels justify new development and there has therefore been an escalation in planning applications for new industrial schemes over recent months along with the welcome commencement of some speculative development in north Dublin.
- Demand from developers and owner-occupiers for well-located industrial land has also increased of late with competitive bidding on sites that have recently been offered for sale.
- Good retail sales activity continues to support occupier demand for prime retail pitches although retailers (particularly international retailers) have become increasingly strategic about their entry, expansion and relocation activity of late.
- As retailers gear up for the Autumn season, we expect to see greater focus on improving multichannel strategies. According to Retail Excellence Ireland (REI), Irish consumers spend approximately €850,000 per hour online – 70% of which is to international retailers. This is an obvious loss to the Irish Exchequer, particularly against the backdrop of weaker Sterling at present.
- According to the MSCI Irish Index, Irish commercial real estate achieved a total return of 2.1% in Q2 2017, with returns higher than 10% on an annualised basis, which is almost twice the level of return achieved in the UK market in the period.
- Several sizable assets have been brought to the market or are due to be released for sale over the coming months including some high-profile office opportunities and The Square Shopping Centre in Tallaght, Dublin 24, which is guiding in excess of €233 million and likely to be of interest to many investors.
- Although yield compression has run its course in many markets across Europe, there is still potential for yields to compress a little further in the Irish market. Based on the strength of appetite for prime investment opportunities, CBRE expect to see some tightening in yields over the course of the coming months as new transactional evidence emerges.
- CBRE expect several large sites and development land portfolios to come to the market over the coming months following a relatively benign first half to the year when development land sales were, for the most part, relatively small in scale.
- Several hotel transactions are now in legals or at preferred bidder stage, which bodes well for a good volume of transactional activity in this sector over the remainder of this year. The most significant property to be launched for sale during the Summer was the 4-starCarton House Hotel, Golf & Leisure Resort, which is guiding €60 million and which has attracted a large amount of international interest in particular. Best bids will be invited on this prestigious property later this month.
- Now that the traditional Autumn selling season has commenced, several high-profile hotel properties are due to be launched for sale. Those in Dublin are likely to be particularly appealing to the many international brands seeking to gain a foothold in the Irish capital.
- Hoteliers are anxious that the 9% VAT rate that has proved so supportive of this sector over recent years be retained in the forthcoming Budget, particularly until there is more certainty on the likely impact of Brexit on this sector over the next couple of years.
- A scarcity of investment product in the Dublin market and the considerable differential in pricing between Cork and the capital has fuelled a notable increase in appetite from investors over recent months with several new investors now considering investing in the city. The biggest challenge continues to be a scarcity of core product to satisfy investor demand, particularly considering the lack of new stock in the Cork market. CBRE therefore expect to see the appetite to forward fund new buildings continuing to strengthen over the course of the coming months.
- As has been the case in Cork in recent years, some of the transactional activity in the investment sector is occurring off-market.
- Although Cork has not yet benefitted from occupier activity that is specifically Brexit-related, there are several active requirements for office accommodation in the city at present. In total, according to CBRE’s research, there is demand for more than 20,000 square metres of accommodation in Cork at present.
Read the full report HERE