Hike in stamp duty for commercial property to hit valuations, says CBRE

The “unexpected” hike in stamp duty for commercial property in Budget 2018 from 2 to 6 per cent will have a once-off hit of about 3.8 per cent on property valuations and pension fund values in the fourth quarter of 2017.

This is according to the latest review of the market by agent CBRE, which says the tax hike will see the 2017 annualised return from Irish commercial real estate “easing back to single digits” but that the rate of return “remains attractive compared to returns being achieved in other European locations”.

CBRE puts investment market turnover at €1.3 billion over the first nine months of the year and estimates the likely out-turn for 2017 as a whole at €2.25 billion.

"Considering the weight of capital chasing limited investment opportunities," says Marie Hunt, executive director and head of research at CBRE Ireland, "we saw some hardening of prime yields over the course of the autumn. Prime office yields are now trending at 4.25 per cent and likely to strengthen further over the coming months. Prime yields for multi-family investments are also trending at 4.25 per cent. Meanwhile, prime high-street yields are steady at 3.15 per cent with prime industrial at 5.5 per cent."

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CBRE puts take-up in the Dublin office market over the first three quarters of 2017 at 183,630sq m – a strong result given that annual take-up over the past few years has been about 200,000sq m.

Prime office rents in Dublin, the company says, have now risen to €681 per sq m (€63.50 per sq ft) and are expected to reach €700 per sq m by year-end. Prime rents in the south suburbs, meanwhile, are now about €306.66 per sq m (€28.50 per sq ft).

The agent is expecting strong trading in Dublin's city centre retail sector this Christmas, especially as the new Luas Cross City line opens along with Bewley's Cafe and Victoria's Secret on Grafton Street.

CBRE expects the spend in the development land sector to be broadly similar to last year’s out-turn of about €800 million with transactions dominated by relatively small land parcels.

Industrial and logistics

In the Dublin industrial and logistics market, meanwhile, take-up in the first three quarters of 2017 was down 20 per cent year-on-year. “This is somewhat disappointing considering the volume of demand for modern industrial and logistics accommodation in and around the capital,” says Ms Hunt. “Now that prime rental values in the sector have reached a level that justifies new development, it is not surprising that there has been an increase in demand for well-located sites capable of accommodating modern industrial and logistics facilities over recent months, particularly against a backdrop of increased appetite as a result of Brexit. ”