When you reflect on the outlook for the Irish commercial property market for the upcoming few years you must consider the fundamentals that underpin the market; demographics, occupier demand and the availability of capital.
When we analyse the availability of capital it is evident from recent capital raising by the large global investment houses that the level of equity seeking to invest in property is quite significant, with currently global property funds standing at approximately $7 trillion.
You then look at what the outlook for bond yields is, and in a recent report conducted by Oxford Economics it was suggested that global bond rates are set to remain at record low levels for the foreseeable future.
The report also predicts that the global supply will grow to $1.7 trillion annually over the next five years. However, demand is estimated to rise at a more dramatic rate, creating a $440 billion annual shortfall, suggesting that yields look set to remain relatively low.
This activity, as well as the ECB’s continuation of its low interest rate policy, will ensure that demand for quality assets that produce income will remain high in the medium term, and in turn that yields will remain strong. In relation to occupier demand, Dublin is yet again set for another strong year of activity, surpassing forecasted take-up levels of 240,000sq m to bring take-up levels in line with that of 2018 at 260,000sq m.
Looking ahead we have a very active construction pipeline of 542,750sq m in the Dublin market, with almost 60 per cent of this space already spoken for. This, coupled with our occupier tracker currently recording nearly 430,000sq m of demand, indicates a positive outlook for the office sector for the short to medium term.
Our demographics are also very positive, with a forecasted growth for a population of over 5.8 million by 2036, the majority of which will be focused in our major urban centres.
This will continue to underpin the demand for more office and residential space in our large cities, and in turn the demand from international capital to continue to focus on Ireland.
Mixed-use development
The big change we are going to witness in Dublin over the next three to five years will be the emergence of large-scale delivery of mixed-use development both green field and brown field, namely the former Irish Glass Bottle site, Heuston, St James’ Gate and North Wall. These developments will have a strong focus on placemaking, sustainability, connectivity and providing living and working formats that will evolve with an increasing demand for inclusive, carefully-curated communities where retirees and starters live side by side. With an ever-demanding younger population seeking a better work life balance, the lines between where we work and live will become increasingly blurred.
As e-commerce grows and the need for retailers to have inner-city logistics for last-mile delivery, we could potentially foresee a scenario where perhaps these new schemes will have basements, but not for cars. Rather, they will be filled with bicycles, electric scooters and act as logistic hubs for online retailers such as Amazon and Asos.
Overall, I believe the outlook for the property market is very positive. However, to ensure this remains the case, what we need now is stability from our government and a halt to interfering with the market as it is this interference that has the ability to de-stabilise and discourage the much-needed international capital that underpins our sector.
Aidan Gavin is head of Ireland at Cushman & Wakefield
