What would you like to see happening in the commercial property market next year? Very simply, supply the space the economy requires. Key cities in key economies are growing at a more rapid rate than countries can manage. We are not the only country with this conundrum but our future success, in terms of a sustained recovery, is dependent on how we manage to get ahead of what is happening rather than observe in retrospect.
It’s not just Dublin – Cork, Galway and Limerick all have momentum. It is terrific to see the demand for office space, a recovering retail sector and an industrial sector that is trundling along at a good pace.
Such a success story has placed significant pressure on supply and has put upward pressure on rents and notably yield compression, particularly in the Dublin office market. The critical issue for the market in 2016 is one of supply. If we are to maintain our commercial competitiveness, which was inadvertently achieved in such a dramatic fashion by the economic recession, it is essential that supply levels are increased in order to reduce the upward pressure on prime rents.
Where are the best investment opportunities at this stage? Arguably, the best investment opportunities lie outside of the core locations. To date, investment has been firmly focussed in the central business district of Dublin. However, with demand ahead of supply for prime office investments and with yields at, or close to, previous peak levels, investors will likely target prime offices in markets adjoining the central business district that offer good prospects for capital and rental growth.
Residential investment will be a growth sector in 2016. A modest total of €145 million was invested in consolidated ownership of apartments in the first half of 2015. Residential investment activity stagnated in the third quarter as a consequence of speculation surrounding rent control measures. With the measures now decided and a dearth of residential accommodation to rent, leading to an upward pressure in rents, investors are likely to turn to this as an asset class to invest in.
How long more do you expect the sales boom to continue? The scale of the crash has led to an extraordinary international appetite for competitively-priced Irish commercial property, with almost €10 billion transacted in the past three years.
The data to date for 2015 indicates an understandable moderation in investment activity, with overall volumes likely to be down 33 per cent on the historic high of 2014. A reasonably high level of investment activity will continue but moderate to more normal levels.
What changes are we likely to see in the market over the next 24 months? I would like to see a coherent, national property strategy, laying out a sustainable vision for the next 20 years, based on analytical projections and professional collaboration between private and public sectors. We are most likely to see an increased supply of offices and a level of housing construction that may be pleasantly surprising.
Mark FitzGerald is chairman and chief executive of Sherry FitzGerald Group
