Larry Brennan, chairman, Savills
What would you like to see happening in the commercial property market next year?
This year saw a much-welcomed return to activity in the commercial investment market with sales likely to top €2 billion, yields hardening and values recovering in all of the main markets. We hope this has two outcomes. Firstly, the return of more normalised lending into the commercial property sector. Secondly, and most importantly, a return to controlled and sensible development.
Where are the best opportunities for investors?
There will be opportunities as financial institutions continue to deleverage or in some cases leave the Irish market. What's best in terms of opportunity will depend on the buyer's profile. We expect a continued supply of safe and secure dry investment assets, which will be priced appropriately.
There will, however, be value-add opportunities which will offer more competitive pricing and potentially higher returns to reflect the associated risks.
We also expect some larger development-led opportunities to come to the market. While the smaller end of the development land market is seeing significant recovery, the larger, more capital-intensive end has not been tested. Opportunities may lie in this area.
How much have values fallen since the peak and are they still sliding?
Sentiment has improved, but there are key factors that affect individual property values. We have seen value falls of, in some cases, well over 50 per cent over the past five years. There is no doubt that there is significant recovery in some sectors, including smaller development opportunities and prime investment products. However every property and location has to be considered on its merits.
“Group think” in property investment terms is a dangerous precedent. One lesson that has to be learnt from the slump of the last five years is that recovery will be influenced by property type, quality of tenant and building standard – and location.
How can the retail market be revived?
Retail is an area that I know very well from a personal standpoint. As a sector it is quite easy to understand. In simple terms, what goes into the retailer's till in sales and turnover is directly linked to that tenant's ability to pay rent and remain sustainable.
This year has seen a stabilisation in retail sales, we are still some way from recovery, with continued budgetary impacts and taxation increases adversely effecting consumer confidence, disposable incomes and hence retailers’ turnover.
There are some green shoots, however. The labour market is now in strong recovery mode with 74,000 jobs being added since the first quarter of 2012. This suggests private sector job growth of nearly 5,000 per month net.
This is now beginning to be seen at the tills. VAT receipts for the September-October trading period were 5.2 per cent above target, while total VAT returns for the first 11 months of the year are 2.8 per cent up on last year.
Traders are reporting positive pre- Christmas sales. In saying that, and despite the success of the Government's Action Plan for Jobs, further measures are required to put serious impetus into improving the domestic economy, improving consumer sentiment, lowering savings ratios and helping to drive retail sales.
Aidan Gavin, MD, DTZ Sherry FitzGerald
What would you like to see happening in the commercial property market in 2014?
We are without a doubt suffering a dearth of supply in the CBD [central business districts] office markets, which if unresolved will inevitably lead to strong rental inflation. If we are to remain competitive and continue to attract high-quality companies into Ireland, it is imperative that in the next 12 months construction is commenced on large office blocks in the central business district of Dublin. Also we would like to see a continued supply of investment product released to the market to ensure we maintain the interest of international investors.
Where are the best opportunities for investors?
I believe prime Dublin and regional retail represent good opportunities for investors. In general, most retailers have weathered the storm and end-user demand is starting to return. This has not yet translated into rental growth or yield compression, however, I believe this will occur in 2014.
How much have values fallen since the peak and are they still sliding?
Prime values are down 65 per cent to 75 per cent from peak, but there is certainly evidence of stability for prime, fit-for-purpose buildings in 2013. I would even suggest there has been capital appreciation in the CBD office stock in the past 12 months. Secondary and tertiary locations are still challenging.
How can the retail market be revived?
In the last few months we have seen a return in consumer confidence and spending which should translate to a stabilisation in this sector. It is essential this trend is continued and consumers are left with money in their pockets for discretionary spending.
Enda Luddy, MD, CBRE
What would you like to see happening in the commercial property market in 2014?
I would like to see a continuation of the momentum experienced in the Irish market over the last 18 months and the commercial real-estate market continuing to recover following the unprecedented deterioration since 2008.
I would like to see improving economic conditions continuing to fuel activity in the occupier markets with strong volumes of letting and sales activity being recorded in the office and industrial sectors on the back of continued foreign direct investment and some further improvement in the retail sector as consumer confidence improves.
I would also like to see yields contracting at a slower pace in 2014 than over the the last 12 months. I would like to see the pace of deleveraging continuing on a controlled basis.
Where are the best opportunities for investors?
The best opportunity for investors will be in the Dublin office sector in my opinion. Prime office rents have increased by more than 25 per cent during 2013 and are on course to increase by a further 15 per cent during 2014 to reach €435 per sq m or €40 per square foot by year end 2014.
At these rental values, new development is once again feasible and this will give rise to some interesting development opportunities. There will also be opportunities for investors to enhance returns by investing in sectors such as distribution and logistics.
How much have values fallen since the peak and are they still sliding?
Commercial property values in Ireland fell by an average of 60 per cent between 2008 and 2012. Values stabilised during 2012 and prime property saw some value improvement during 2013 as a result of a combination of significant yield correction and the emergence of rental growth.
Outside of prime assets, values remain quite flat but we expect to see the value of secondary assets starting to show signs of improvement over the next 12 months, following the trends already been witnessed for prime properties.
How can the retail market be revived?
Unfortunately there is no 'one size fits all solution' for the retail sector which has suffered more than any other sector of the Irish commercial real-estate market.
In our experience, prime shopping centres and high streets are trading quite well again and there is negligible vacancy. However, this has yet to filter through to secondary properties – with many secondary high streets and provincial schemes still finding trading difficult and many provincial high streets with double digit vacancy rates.
The need for intensive asset management of retail property has never been more important. This is obviously achievable in shopping centres and retail parks but a bigger challenge on high streets where stores are in multiple ownership.
Town councils and local organisations have a huge role to play in stimulating demand in these instances. Retailers themselves also need to adapt their offer and ensure they are developing their online presence to the same extent as their physical stores.
With a new postcode system being rolled out in 2014, an increasing proportion of Irish retail spend will occur online.
James Nugent, MD, Lisney
What would you like to see happening in the commercial property market in 2014?
Firstly we need to start office construction in the city centre to ensure we have sufficient supply for employment growth. Related to this, banks need to lend for speculative office refurbishments in the city centre.
Secondly, we need to release more investment property for sale to satisfy demand – much of which is overseas money and highly mobile. We still have a lot of property to dispose of and it is possible these investors will start looking in other recovering economies given the frustrations in sourcing suitable product.
Where are the best opportunities for investors?
There is still considerable upside both in terms of capital appreciation and rental growth for Dublin city-centre office properties but these are chased hard by national and international investors. In time, the smart money may be focused on selected shopping centres in specific locations.
How much have values fallen since the peak and are they still sliding?
According to the IPD [Investment Property Databank], who are the most reputable when it comes to commercial property values, overall commercial property has fallen by 67 per cent since the peak. IPD is already stating that overall values are rising and we believe they will continue to do so for 2014.
How can the retail market be revived?
We have to accept there have been changes [in the way] people shop, most of which relates to online retailing. Regardless of this, nationally we are over supplied with retail space. Part of the solution is to look at alternative uses (community/residential) for retail space and let small towns grow organically whilst allowing them return to a traditional town centre.
John Moran, MD Jones Lang LaSalle
What would you like to see happening in the commercial property market next year?
This year saw significant improvements particularly in terms of increased liquidity in the investment market and office take-up. I think the most telling event to occur in 2014 should be the resumption of construction in the commercial market which will be an endorsement that the recovery is real rather than a supply-demand bubble.
In addition I would like to see the current investment market liquidity sustain or perhaps even grow further.
Where are the best opportunities for investors?
I think the best opportunities will be for those investors who are prepared to move up the risk curve and deploy their skills either by property type or sector. Retail looks like a good bet to me.
How much have values fallen since the peak and are they still sliding?
Values are back 60 per cent but the falls have stopped in the prime sector. From a valuation perspective the market remains polarised.
How can the retail market be revived?
I am never a fan of market intervention by Government, however they can set the agenda by being innovative around infrastructure and business conditions.
Small things such as making the city centre more accessible for both private and public transport would help. Free on-street parking and not doing road works at peak trading times would be a start. Reducing the cost of business would also help and some good old-fashioned promotion of the city as a place to shop would help.
