Which sectors of the market will be most active next year?
From an investment perspective, the office market is likely to be the busiest, with good visibility on various assets that are due to the market over the next 12 months. This product will be well received considering the dearth of prime investment opportunities and the spread of European and Asian investors looking to invest in Ireland.
There continues to be very strong demand from investors for core product in this sector in particular, considering the relative strength of the underlying office occupier market, the strength of the Irish economy and the fact that Ireland is attractively priced compared with other European locations that investors are focusing on.
Have rents and yields peaked across the various asset classes?
It is obviously difficult to generalise across sectors, but our sense is that there is still potential for some yield compression in various sectors of the Irish market, most notably prime offices, prime multifamily residential, hotels and industrial. This is at odds with many other locations in Europe where yield compression is unlikely at this point in the cycle.
From a rental perspective, it is clear that prime CBD offices in Dublin have reached a plateau. However, rental growth will still be in evidence for secondary and provincial locations over the coming 12 months. Meanwhile, we believe the best rental growth is likely to be seen in the residential and industrial sectors over the next 12 months, sectors which are fundamentally undersupplied.
Where are the best investment opportunities at this stage?
In a nutshell, sheds and beds! The industrial and logistics sector looks particularly attractive at this juncture and while sourcing product continues to prove challenging, there will be opportunities to deploy capital in this sector now that new stock is being developed and in many cases pre-let.
Yield compression and rental growth are in prospect in this sector. The residential sector is also attractive and I would expect to see increased appetite for build-to-rent stock and student accommodation investment opportunities in 2019.
One thing to watch out for in 2019?
While it is difficult to second-guess global macroeconomic drivers at this juncture, I think one of the things to watch for will be an increase in interest rates in the euro zone, given that there is an intrinsic link between bond rates and real-estate yields.
However, it is fair to say that interest rate rises are unlikely to materialise until the latter part of next year and even then will be marginal, meaning real estate will still look very attractive in comparative terms.
Johnny Horgan is executive director and head of capital markets at CBRE Ireland
