Look out for Euro-Asian invasion into commercial property

Which sectors of the market will be most active next year?

Although the demand for city-centre retail and offices will remain strong in 2018, alternative investment classes such as the privately rented sector (PRS), student accommodation and hotels are likely to dominate. PRS in particular has the potential to outperform, with both local and overseas investors targeting an increased weighting in this sector.

Unlike the office market, where institutional investors have been reluctant to fund speculative development, investors are open to forward purchasing residential schemes, increasing the potential supply. With several of the largest international funds as well as a number of specialist PRS investors now active in Ireland, residential transaction levels are set for a significant boost.

Have rents and yields peaked across the various asset classes?

Commercial property market finally finishes firefighting

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Rental growth potential will be key factor for investors

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Industrial/logistics sector primed for growth in 2018

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Head for the ’burbs for the best office opportunities

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Yields for prime offices and retail in Dublin are close to historic lows. As evidenced by the strong demand from European funds, Irish property returns are, however, still seen as attractive relative to continental levels with potential for further compression.

Although rental growth in Dublin city centre has slowed, the development pipeline remains constrained by lack of finance, with demand continuing to exceed supply. While this imbalance continues rents will continue to grow. In the key Dublin suburbs and city fringe, both rents and yields have lagged the city-centre recovery with potential for strong growth on the back of increasing demand. Outside the main cities, the provincial markets remain challenging with limited rental growth and static yields.

Where are the best investment opportunities at this stage?

Logistics facilities are likely to perform well with demand for warehouse space continuing to accelerate in 2018. The threat of a hard Border could have significant implications for warehousing, with both online and traditional food retailers likely to require a larger Irish footprint if new customs requirements result in import delays from the UK.

Outside Dublin, the city-centre markets of Cork and Galway offer attractive investment opportunities, with new office development in Cork in particular providing institutional-quality assets with potential for higher returns. Similarly, the high-street retail markets in these locations now look attractive relative to Dublin, with yields on Patrick Street above 6 per cent.

One thing to watch out for in 2018?

The investment market is likely to see an increase in new entrants from both Europe and Asia in 2018. The quality of the office stock, combined with the longer lease terms in Ireland, has already attracted a number of Singaporean and Korean funds and we anticipate further demand from these markets, particularly for large-scale assets.

Adrian Trueick is director of investments Ireland at Knight Frank International