Some of the major players in the commercial property market predict what 2004 will bring.
Ann Hargaden
Director, Lisney
We are heading into a period of rising interest rates but, unless the increases are substantial, they are unlikely to affect demand for quality well-let investments. Inflation is heading down and growth is forecast to increase which augurs well for the market. Last year's supply was assisted by the sale of three large portfolios - Green Property, Royal & Sun Alliance and Royal Liver - which sold for ?350m. There was little product available and the lack of supply led to record prices. This will continue into the new year with less investment availability expected.
Private investors are loathe to sell unless they already have an alternative investment. Institutions, largely absent from acquisitions in 2003, sold off some older smaller properties. They may re-enter the market for good value larger lot sizes in 2004, particularly in the retail sector.
Investment flowed out of the country with ?2 billion gone overseas compared to ?850 million of investment here. This is due to the increase in stamp duty to 9 per cent and the perceived returns abroad. Once Irish investors take the step to invest abroad and the initial hurdles are overcome, they are unlikely to return to Ireland in the short term, particularly if purchasing costs remain high.
So for the year ahead, there should continue to be strong demand here and overseas particularly if supply remains tight and I suspect we are probably looking at much the same market as the year gone by.
Aidan O' Hagan
Chairman, Hamilton Osborne King
With all markets other than retail, investments, country houses and the Dublin second-hand house market likely to be in a surplus supply situation, 2004 will be a year of opportunity for the occupier in oversupply sectors. Demand is likely to exceed supply in the sectors with the greatest scarcity in the investment and retail areas. With new house completions in 2003 likely to exceed 65,000 units for the first-time buyer, 2004 will represent the optimum buying opportunity with prices flat and enhanced specs. Supply in the second half of 2004 is likely to slow significantly and by 2005 developers will have reduced output and buyers will face modest price increases.
The buy-to-let market will slow in demand terms but the supply of apartments is likely to be strong and there may be excellent buying opportunities. Supply in the urban second-hand homes markets will be inadequate and 5-10 per cent price increases can be expected here next year. The industrial market is unlikely to sparkle while the commercial market will remain challenging, especially in the suburbs. This market may be at its low point in 2004 - I expect the city centre market to be in a recovery phase in the third quarter. Retail demand will remain strong and rents and prices are likely to grow in 2004. The story will be similar in the investment market where the value of supply is likely to fall. I expect activity levels across the market to be similar to this year.
Terry Cunningham
Managin Director, MA&Son(Galway) Ltd.
The Galway property market is set to continue its growth of the past five years but at a more modest pace. The final quarter has seen record prices at auction, in tender and by private treaty sales. For 2004 the retail market will be buoyant. Quality city centre units are difficult to find. Retail parks have seen some activity with leasehold interests changing hands. The office market, sluggish for two years, is showing signs of an upturn but there is substantial space available. City centre locations with parking should achieve market plus rates. The residential market will hold up and there will be capital appreciation particularly in the well-located city areas. The buy-to-let market will probably show a small fall off as the city is well-supplied with rental properties. Rents have been flat or falling slightly. However, Galway will continue to provide long term tenants.
New housing schemes are selling briskly. Profit taking sales combined with high unit numbers may see a stagnation of prices in outlying areas. Warehousing demand is strong and should continue. In manufacturing, there has been expansion of existing units and plans would indicate further demand here. Licensed premises have shown excellent results with records being broken. Galway has absorbed several hundred new hotel bedrooms, and occupancy rates are good throughout the city and suburbs.
Conor Kevany
Director, Palmer McCormack
Contradiction was the characteristic of the 2003 market and a continuation of this appears in prospect for 2004. The lifeblood of this market - occupational demand - continued at a weak level in the office and industrial sectors with weakening demand in residential and off-prime retail. This was the profile across Europe with Ireland creating demand at the top end of the EU league table. Investor demand remained strong fuelled by low interest rates and a cautionary attitude to equities. Banks tightened funding criteria and became unreceptive to short term lease expirations reflecting weak demand and the marginal nature of redevelopment projects.
Competitiveness in the private sector improved as the Celtic Tiger become nostalgia. The need to balance the public books produced a 50 per cent increase in commercial stamp duty rates to 9 per cent, a move that represented the probable sequestration of ?400-?500 million of pension fund and investor assets. This has and will negatively impact on activity and exchequer revenue. The greatest risk to continued economic and social progress remains the erosion of competitiveness which is primarily generated by the public sector and accompanied by a myriad of regulatory procedures across the economy.Economic activity should show gradual improvement though 2004 translating into an increase in occupational demand, provided we don't nationally continue our recent run of own goals.
Confidence in commercial property as a solid form of investment is high at present. This is likely to continue in 2004. The wealth created in our economy and the property sector in recent years is unprecedented and this, combined with low interest rates, has created a huge appetite. While a reduction in stamp duty will be an important fillip it will not halt the flow of investment out of Ireland to the UK and Europe where product is more readily available. It could be argued that the Irish investor camp has outgrown our market.
Sean McCormack
Director, DTZ Sherry Fitzgerald
Positive trends and outlook for our economic performance over the next two to three years support an optimistic approach to well-located property in 2004. Occupier demand remains weak in the office and industrial sectors but retail is likely to deliver development opportunities. Most activity will be outside Dublin as expanding towns develop. Many local authorities have completed or are preparing retail strategies to plan for improved facilities. The inadequacy of road and public transport is an impediment to growth in certain areas. This will be a concern for years to come but localised progress can be made with the completion of Luas in 2004. Landlords of let buildings with five yearly rent reviews due in 2004 face a challenging year. Office and industrial property that was well let in 1999 will have less scope for increase than their counterparts with reviews falling due during 2002 and 2003. Tenants are likely to challenge landlords.
Pat Gunne
Managing Director, CB Richard Ellis Gunne
The last three years have been a bit mixed in property; we have seen capital values in the office sector rising with real rental levels falling. This has been due to low interest rates and lots of Irish capital chasing property. The tide may be turning in the tenant market as occupiers look for expansion opportunities in the global economic recovery. Our forecast is that the city centre office market may turn again in favour of the landlord by 2005, gradually improving in 2004. The suburbs are a different story. The retail sector, resilient during the slowdown, is showing signs of further growth, and I think this is set to continue, albeit in a much more subdued fashion than previously. There is an argument that capital will consider the equity markets seriously but, if it does, any stock market rally will probably once again release institutional funds available for investment in property.
The Irish investment market will be characterised by more demand than supply, but European yield levels look attractive and will deflect capital away from the domestic market. The UK will remain in vogue, however rising interest rate trends, especially for long term money, will make it more difficult to fund if yield levels continue to contract against a backdrop of improvement in the rental markets.
We are unlikely to see rental growth in 2004 except in retail, but property will once again be a steady performer, with 2005 showing very positive prospects.
Margaret Fleming
Director, capital markets, Jones Lang Lasalle
Property in 2004 will be a mixed bag - certain parts will do well with others "challenged". Consumer confidence is undaunted and with an economic recovery underway there seems little reason to fear a consumer strike. Overseas retailers are happy in Ireland - demand from them will drive the rental market. Since retail supply is limited, rental growth is likely. Not so with offices, where supply overhangs the market. Office tenant activity has been reasonable this year and may be repeated in 2004, but it's mostly moving the deckchairs until real job creation starts again. Pressure on office rents and incentives will remain in 2004, with a similar story in industrial.
As long as Europe struggles in 2004, low interest rates are likely to prevail. This will keep investment prices high, so that the returns can only be justified by leveraged investors (very brave ones, in certain cases). In the face of a wall of private and bank money, the institutions are likely to find 2004 another frustrating year for getting a foothold in the market. Even more money will pour out of Ireland in 2004 in search of larger markets, more choice and lower transaction costs. Irish investors are getting more adventurous, with mainland Europe (Mediterranean and eastern), the US and Australia on the shopping list. A strong residential market may see more buildings and sites convert from office to residential use, although the more astute commercial developers will be watching closely for the bottom of the cycle.
John Finnegan
Managing Director, Finnegan Menton
Next year will be another very active year for Irish investors. Over ?800m was invested nationally in 2003, restricted only by a lack of stock, with more than double that spent by Irish investors in the UK and Europe. Private investors led the way and this will continue with co-ownership and private pension structures.
The banks will maintain their enthusiasm for property lending. While modest rises in interest rates are expected such moves will be minimal. Base rates in 2003 moved from 3 per cent to close to 2 per cent - they will stay in the 2 per cents with five-year cost of money staying below 4 per cent. There are indications that the office occupier market is picking up - expect good quality city centre stock to benefit first while Luas may provide a boost to out-of-town offices.
The retail market was a success in 2003, led by Grafton Street in the occupier and investment markets. I see good performance from Henry Street in 2004. The demise of the capital allowance schemes at the end of 2004 should ensure a frenetic time for builders and a buoyant sales market in the later half of 2004. While there are some lingering concerns with the domestic economy, this has not impinged on the investment market and the continuing improvement of world economies, led by the US, should further boost the market. Although a shortage of stock may lead to a greater appetite for UK and European opportunities, I look forward to a good year ahead in the Irish market.
