Commercial Property Market To "Pause For Breath"

04 July 2018

Written by Robert McHugh, on 2nd Jul 2018.
Commercial property specialists CBRE today released their latest bi-monthly report focusing on the latest trends and transactions in all sectors of the Irish commercial property market. 
The report shows that particularly strong take-up was recorded in the Dublin office market in the first six months of 2018 with take-up in second quarter significantly boosted by the recent acquisition of 22,146m2 of office accommodation at the Boland’s Quay development in the south Docklands of the city.
In addition to strong volumes of take-up, a number of significant transactions are currently in negotiations and there are several unfulfilled mandates prevailing.
New research from CBRE shows that Dublin currently ranks 27th in a survey of global office occupancy costs, up from 29th place this time last year. With office rents in the suburbs of Dublin remaining at levels that are at least half that prevailing in the heart of the CBD, CBRE believe there is now tangible evidence of occupiers looking to move to more cost-effective locations such as the suburbs.
In addition to a notable increase in lettings to co-working and flexible office providers over the last 12 months, CBRE are increasingly seeing organisations introducing flexible working strategies in an effort to lower costs, improve employee engagement and increase productivity within their existing office buildings.
Following the completion of almost €1 billion of investment transactions in the Irish market in the first quarter of 2018, activity has continued at pace over recent months. Although a somewhat lower investment outturn is anticipated in the second quarter of 2018, there are several sizeable assets being marketed at present which will boost transactional activity further in the third and fourth quarters of 2018. Some further Asian investment is expected to materialise in the second half of the year.
CBRE say investors from a range of jurisdictions continue to be attracted to real estate investment opportunities in the Irish market, attracted by buoyant economic fundamentals and the relative strength of occupier market activity as well as comparatively attractive pricing. 
The commercial property specialists envisage a further shift in the sectoral split of investment spend over the coming months with an increasing proportion of investors seeking ‘alternative’ investment opportunities. PRS/Build to Rent continues to evolve as a mainstream sector of the Irish investment market in its own right. Indeed, according to CBRE, the volume of capital chasing residential investment opportunities in Ireland’s main cities continues to escalate with several investors who heretofore focussed primarily on traditional investment sectors such as offices and retail now also willing to consider investment opportunities in the residential sector. 
To some degree, this is a diversification play on a sector that is generally less susceptible to cyclical patterns, but investors are also attracted by the attractive yield profile and rental growth prospects in an Irish context. According to CBRE, most of the capital targeting the PRS/Build to Rent sector in the Irish market is looking to invest over a long-time horizon.
Commenting on the bi-monthly report, Executive Director & Head of Research at CBRE Ireland, Marie Hunt said, "Activity in each of the occupier markets remained strong throughout the first half of 2018, buoyed to a large degree by continued job creation in the Irish economy. The months of July and August will now see the pace slow a little with the focus shifting towards closing out many of the transactions that are either in legals or in negotiations at present before the next wave of activity commences in Autumn. Prime rents and yields in all sectors remain relatively stable at this juncture although further rental and capital value growth is anticipated in all sectors of the market in the second half of 2018."
She added, "Considering the strength of both the domestic Irish economy and occupational activity, demand for core real estate investment opportunities in the Irish market remains strong although there has been a notable sectoral shift in investor appetite over recent months with focus on the Build to Rent/PRS sector becoming increasingly evident. Another trend that has become evident over recent months is that an increasing proportion of transactions in the hotel, development and investment sectors are being conducted off-market."