Commercial property specialists CBRE today released their comprehensive OUTLOOK 2022 annual report containing their predictions for each sector of the Irish property market in the year ahead. The property consultants say that Ireland’s property market performed better than expected in 2021, particularly in the second half of the year when onerous travel restrictions were eased and occupiers and investors could travel to inspect opportunities. A number of high-profile transactions completed in the run up to year-end and those that didn’t complete by December 31st will now provide a good boost to what is expected to be another strong year for the commercial property market in 2022.
Speaking at the virtual launch of the 33rd edition of their annual Outlook report, Myles Clarke, Managing Director at CBRE Ireland said, “The landscape for commercial real estate is dramatically different from the last decade, yet long-term financial trends and the growth trajectory of the Irish economy remains intact. This presents immense opportunity. Indeed, the central theme of this year’s report is ‘Identifying Opportunity”.
In commenting on expectations for the Irish commercial property market in 2022, Marie Hunt, Executive Director & Head of Research at CBRE said “Following a strong second half in 2021, we expect to see continued momentum in transactional activity in all sectors of the Irish property market again in 2022. Although the legacy of the pandemic will remain with us for some time yet, the strength of investor, developer and occupational demand is encouraging. Even sectors that have been severely impacted by Covid-19 should see transaction volumes revert back to 2019 levels over the course of the next 12 months – in essence going ‘back to the future’. A key theme for 2022 will be increased focus on sustainability. ESG and taxonomy is now the lens through which occupation, development, investment, and funding decisions are made and we expect that 2022 will mark a step change in ESG becoming an integral factor across the full range of real estate decisions. As the year progresses, we will see increasing evidence of a green premium (Greenium) for assets that display the best ESG credentials. We will see several investors reorienting their portfolios and reducing exposure to certain types of real estate in favour of other sectors or building types, with much of this strategic change influenced by concerns about ESG. Agility has always been important in terms of real estate strategy – it is now essential. While supply bottlenecks, price increases, inflationary pressures and the still-uncertain course of the pandemic are key risks in the short to medium term, strong occupier and investment demand and stable short-term interest rates will support confidence and unlock opportunity in the year ahead. The issues of viability and affordability will however remain a central theme throughout 2022”.
- According to CBRE Research, €5.5 billion was invested in the Irish real estate during 2021, of which 41% was invested in residential, 30% in offices, 18% in industrial & logistics and 6% in retail.
- A key trend CBRE anticipate in 2022 is increased appetite for alternative investments. In addition to demand for traditional office, industrial & logistics, residential and retail opportunities, investors will focus on investible opportunities in new sectors including data centres, film studios, self-storage, life sciences, senior housing, and alternative energy.
- Against a backdrop of high inflation and the threat of rising interest rates from 2023 onwards, CBRE say we are unlikely to see significant yield movement in the Irish market over the course of the next 12 months other than in the industrial, student accommodation and hotel sectors where some further compression may be witnessed. Core office yields could also tighten a little particularly for prime product demonstrating superior ESG credentials.
- Although many corporates remain unsure of their longer-term office requirements, occupiers are beginning to explore growth and expansion opportunities again which bodes well for the year ahead. According to CBRE Research, more than 153,000m2 of office leasing activity was recorded in Dublin in 2021.
- While CBRE anticipate a further improvement in office take-up in 2022, boosted to some degree by the carryover of some transactions from last year, the property consultants believe that it is likely to be 2023 before leasing velocity returns to pre-pandemic levels.
- 2022 will see greater divergence in performance and pricing between prime and secondary office buildings. The ‘flight to quality’ trend, will increasingly see occupiers and investors favouring new and more sustainable buildings. CBRE are also predicting more adaptive reuse of existing buildings.
- According to CBRE, considering the length of time it takes to deliver new office stock, it is important that schemes with planning now move to commence construction to ensure consistency of supply over the coming years.
Industrial & Logistics
- According to CBRE Research, a strong 265,000m2 of industrial take-up was recorded in Dublin in 2021.
- The industrial & logistics sector was clearly the star performer of the Irish commercial property market in 2021 and looks set to be a key focus for both occupiers and investors again in 2022.
- Rising build costs and site value inflation will put further upward pressure on industrial rents in 2022 with rents likely to surpass €118 per square metre in the Dublin market before year end.
- High demand and record low vacancy rates will encourage developers to deliver new supply in 2022 with developers willing to take on more risk and kickstart speculative schemes. CBRE expect to see a notable increase in speculative development of industrial and logistics accommodation this year.
- There was a high volume of retailer enquiries and a good recovery in transactional activity in the retail property market throughout the latter half of 2021 and in the run up to Christmas. Consequently, a number of new entrants are due to open their first Irish stores in 2022.
- The Irish retail property market is expected to recover at a faster pace than the UK market.
- Supply chain disruption will continue to create inflationary pressures for both retailers and consumers in 2022. The cost of store fit-outs will remain a concern while the scarcity of labour will also prove challenging for some retailers in the year ahead. However, the biggest concern for retailers in the short to medium term is the threat of further lockdowns or restrictions being imposed.
- Both established parties and several new entrants are keen to invest in the multifamily sector, attracted by opportunities to develop and provide much-needed housing. CBRE say that it is therefore critical that further Government intervention in this sector is now curtailed to avoid this abundance of capital opting to move into alternative investment sectors or jurisdictions. Investors in the residential sector are used to regulation in every market in which they operate and understand the need for Governments to monitor investment activity but are frustrated by the sheer number of interventions that have been made in the Irish market over the last number of years.
- CBRE expect to see stronger investor interest in secondary cities over the course of the next 12 months. Although viability will remain compromised outside of the core Dublin market, the property consultants expect to see some multifamily trades in core provincial cities in 2022.
- Proposed restrictions on the level of leverage within Irish-domiciled regulated funds, as proposed by the Central Bank of Ireland, has the potential to impact negatively on the pool of capital targeting multifamily opportunities in the Irish market. CBRE say that this is disappointing considering the extent to which this capital can assist with the Government’s ambitious aspiration to develop 34,000 housing units of various types and tenures every year for the next decade. According to CBRE, some of the items proposed in the new draft development plans for Dublin City Council and Dun Laoghaire Rathdown County Council will also pose challenges from a development and viability perspective.
- According to CBRE Research, there were 100 land sales completed in the Irish market during 2021, totalling more than €657 million between them.
- CBRE say that there is good visibility on a number of development opportunities that are due to be offered for sale during 2022. In addition to a carryover of transactions that didn’t sign by year end 2021, there are quite a few sites and development opportunities due to be offered to the market from Q1 onwards, including some campaigns which were put on hold during the pandemic.
- Vendors see an opportunity to capitalise on strong levels of demand for sites and CBRE expect to see competitive tension for well-located sites, particularly those that have the benefit of an existing planning permission and access to supporting infrastructure.
- Projects that offer developers an opportunity to retrofit older stock and bring buildings up to the highest ESG credentials will also be highly sought after.
- According to CBRE Research, there were 18 hotel sales completed in the Irish market last year, totalling almost €383 million.
- CBRE anticipate a further increase in the level of transactional activity in the hotel sector in 2022 buoyed by recovery in trading performance and the emergence of some new investors targeting this particular sector. In addition to the sale of individual properties, the property consultants expect to see some hotel portfolio activity this year. At this early stage in the year, CBRE already have visibility on over €500 million of hotel trades that are expected to transact in 2022.
- CBRE say that we are unlikely to see many distressed sales in the hotel sector in 2022. Most decisions to sell will be influenced by lifestyle reasons or owners making the decision to retire. The removal of Government supports in due course may force some owners to reassess their options while proposed Central Bank rules on limiting leverage levels within certain Irish domiciled funds may also trigger some hotel sales activity.
- The spate of new high-quality development that has come on stream and at various stages of development in Cork city will create new investible opportunities and prove attractive to investors seeking prime stock that meets the highest sustainability standards and quality of design. While investors are likely to primarily target office investment opportunities, CBRE expect to see good demand for any well-priced retail properties that are offered for sale. They also expect to see good investor demand for any multifamily, hotel or student accommodation assets that are brought to the market in Cork over the course of the next 12 months while they say that any industrial and logistics assets that are offered for sale will attract considerable interest.
- 2021 was one of the most active years on record for Ireland’s healthcare sector with investment more than double the volume transacted in the previous year. In total, more than €600 million was invested in healthcare assets last year. New and continued overseas capital flow was a key feature in 2021 and will be again in 2022 with the Irish market standing out as a core investment geography and growth market.
- CBRE expect to see more demand for sites and more cranes on the horizon from 2022 onwards with considerably more development taking place in the healthcare sector than was the case previously.
Considering the levels of pent-up demand, 2022 will be a sellers’ market from a healthcare perspective. With few assets available to purchase, individual nursing homes (particularly those that are fully future-proofed) that come to the market will be highly sought after.