The Irish commercial property market is shaping up to be even busier this year than in 2013 because of more favourable domestic economic indicators and some improvement in the availability of debt funding, according to
Enda Luddy
, managing director of CBRE Ireland.
He told a gathering of clients yesterday we were likely to see property being released for sale by Nama and the various financial institutions at a similar pace to last year. However, with several properties and portfolios launched for sale towards the end of 2013, there would be some carry over into this year and the overall transactions volumes were expected to be stronger as a result.
Luddy predicted there would be a continuing appetite from international investors for Irish real estate and said the likelihood was that other new REIT vehicles would emerge over the course of the year following the launch of the Green and Hibernia REITs.
Looking further ahead, he said it was difficult to comprehend the speed at which the real estate market would have to adapt as a result of technological advances and the effects of globalisation over the coming years. Technological change and globalisation were the two trends that would dominate the next real estate cycle, affecting each sector of the market in a variety of ways. It was vital to keep abreast of emerging trends to pre-empt how real estate would be planned, designed, developed, occupied , owned and managed in coming years and decades.
CBRE's report on the investment market compiled by Marie Hunt said that with further rental growth expected in the Dublin office market this year, and the first increases in rental values in other sectors likely to materialise in 2014, there was the potential for some further yield compression although it remained to be seen to what extent yields would contract considering the very significant hardening of yields during the last 12 months.
“We expect that the pace of yield contraction will ease this year as prime yields in most sectors are now at or close to their long term averages. Investors are undoubtedly also conscious of what will happen to commercial real estate pricing once interest rates increase from the current low levels which they inevitably will.”
The report suggested that after investing in core assets in prime locations during a period of uncertainty, some investors were expected to move up the risk curve to secondary properties with value added potential in an effort to boost returns.
CBRE predicted there would be great focus on student accommodation, data centres, logistics and healthcare facilities as investors diversified in order to obtain higher returns. Multi-family residential investment would increasingly become a mainstream investment class.
Return of the crane
Turning to the office market, the report said 2014 would see the return of the crane to the Dublin landscape as the next wave of office development commenced in the capital. The complete lack of office development over the last three years had manifested itself in supply shortages of Grade A office space in core locations which in turn had fuelled a resumption of rental growth.
Prime office rents in Dublin 2 and 4 increased by more than 25 per cent in the last 12 months and were set to increase by a further 15 per cent during 2014 to reach €435 per sq m (€40 per sq ft) by year end. New developments would be feasible at these rental values and they expected to see the beginning of the next wave of development in the coming year. This would be supported by the adoption of the Dublin Docklands Strategic Development Zone later the year.
In its review of the retail market, CBRE said that while discount retailers were the most active in recent years, they expected to see more high profile retail brands coming to the fore in 2014. In addition to existing retailers expanding and relocating, several new international retailers were expected to make their Irish debut.
Industry muscle
CBRE said the industrial and logistics market was likely to match, if not exceed, the record level of transactions in 2013. With demand continuing to outstrip supply for well located modern facilities, there should be an increase in industrial rents emerging for the first time in six years.
By year end they anticipated industrial rents in the capital will have reached €67.76 per sq m (€6.30 per sq ft). Although they did not expect any speculative developments in 2014, there would probably be an increased demand for prime serviced industrial sites, particularly those with good accessibility to the M50.
The report shows there were 33 hotel sales in Ireland in 2013 totalling almost €160 million, compared to 24 hotel sales valued at €146 million in 2012.
There were 96 sales of investment properties valued at over €1 million totalling €1.78 million. This compared to 35 transactions totalling €545 million in 2012. More than 50 per cent of the sales last year were to overseas investors. When loan sales are added the overall turnover exceeded €2.5 billion.
