What effects will Brexit and the proposed tax changes have on the commercial property market?
It is still early days in terms of both these issues, with more 'unknown than 'known', and as such the true impact cannot be fully understood. However, we have already noticed an uplift from both UK and US occupiers looking at Ireland, as an alternative location to the UK for their European base. It will take another six months to see these enquiries materialise into actual activity, but the initial reaction is positive from an office prospective, which should in turn lead to increased residential demand.
In relation to the recent changes to the treatment of section 110 companies, we believe that it will create a period of pause in the market, while the investors adjust to the changes. We have enjoyed unprecedented activity in terms of sales over the last four years. However, we are now at a point in the cycle, where we would expect to see lower activity with a greater focus on smaller lot sizes and single asset sales. Such products are more likely to be acquired by domestic investors and property companies that traditionally do not avail of these structures. Given the underlying demand for investment product and the alternative returns offered from Gilts and deposit rates, property is still a very attractive investment.
Is there sufficient bank funding available to allow the owners of large portfolios to offload individual properties next year?
From recent activity, it is clear that the traditional pillar banks are backing property and are available to fund the right purchases. There is every reason to believe this will remain the case going forward. It is not all about the senior debt provider, a recent report completed by Cushman & Wakefield showed that the average gearing across European property funds was 48%. This is the sustainable model that we need to strive to.
Where are the best investment opportunities at this stage?
The best investment opportunities in property will be determined by predicting occupational and rental growth trends. Given the strength of the performance of core CBD office assets in recent years, the gap between core and suburban or regional office rents is now at an historic high. Our research indicates that this gap will tighten in the year ahead. As such, it seems likely that the greatest returns will be available in suburban Dublin and other regional centres, which offer the greatest potential for rental growth over the short to medium term.
One thing to watch out for in 2017?
The geopolitical uncertainty facing Europe in 2017, is causing concern for the large fund managers across Europe. Uncertainty leads investors to focus on core prime assets in stable environments. Given our strong economy and stable political environment, we are uniquely placed to benefit from such at trend. Such trends do bolster the case for investment in the private rented sector in particular, as it is considered to be a very solid and robust asset class. This should lead to an increased focus on this sector in Dublin in particular, where interest has been bubbling under the surface for the last 12 - 18 months.
Aidan Gavin is managing director, commercial at Cushman & Wakefield
