Commercial property specialists, CBRE, today released their OUTLOOK 2019 annual report containing their predictions for each sector of the property market in the year ahead.
The property consultants say that with occupier activity remaining healthy across all sectors and strong investor appetite continuing to prevail, the likelihood is that another strong year is in prospect for the Irish commercial property market in 2019 despite the various clouds on the horizon globally.
As the new year begins, the report shows the Irish investment market is in a healthy state. It may be approaching the late stage of cycle, but the Irish investment market still offers considerable opportunity. There is a good breadth of institutional demand and a strong volume of investors looking to deploy capital.
The occupier story in sectors such as offices, industrial, hotels and Build-to-Rent remains compelling and pricing for Irish investment assets remains attractive compared to other locations across Europe.
As Brexit continues to loom large, CBRE expect to see more European funds (including some more French investors) looking to invest in stable markets such as Ireland. The property consultants also expect to see some further Asian capital investing in the Irish market in 2019 and possibly some new Singaporean buyers emerging.
From an investment perspective, the office market is likely to be the busiest sector in 2019 with good visibility on various assets that are due to come to the market over the course of the next 12 months.
Last year, was the second consecutive year where the Dublin office market achieved record performance, boosted by several strategic transactions, predominantly from the expansion of occupiers in the technology sector. While the long-term sustainability of office demand is never certain, considering the volume of outstanding requirements for office accommodation in Dublin at this juncture, there is every likelihood that it could be ‘three in a row’ in 2019, with office take-up in the Irish capital on course for another strong performance and supply expected to remain tight.
One of the more noticeable trends in the office market over recent years has been the extent to which the phenomenon of flexible working has taken hold, with up to 12% of Dublin office take-up in 2018 comprising flexible operators. This is a trend which is only going to become more apparent throughout 2019 as co-working and flexible solutions teeter on the verge of becoming mainstream.
Furthermore, the report finds one of the key trends for 2019 will be the extent to which office leasing activity spills over into new and emerging districts of the capital, boosting areas such as Dublin 8 and easing pressures on the traditional core CBD.
While prime headline office rents in the Dublin office market are expected to remain unchanged at approximately €700 per square metre in 2019, there is potential for rental growth in some locations including the North Docklands. CBRE also expect to see good rental growth being achieved in the suburbs of Dublin and in provincial markets over the course of the next 12 months.
Considering the extent to which office demand in Ireland is driven by multinational activity, CBRE say there is a need to be mindful of global factors that have potential to impact on demand going forward. Aside from trade wars and political factors, issues such as the introduction of an EU-wide digital tax could have implications for office demand in the Irish market going forward.
However, CBRE believe the most pressing issue at this juncture is continued investment in infrastructure and in particular affordable housing to ensure that office workers can continue to be attracted to and accommodated in our cities.
Millennials are spending more disposable income on experiences rather than possessions and routine purchases are increasingly moving online, so retailers must adapt in reaction to this trend. Having physical stores and an online presence that complement each other is essential, especially now that more than 11% of retail sales activity in Ireland is occurring online and growing at a rapid pace. CBRE say retailers need to adapt, differentiate and offer superior consumer experience to survive and thrive in this omnichannel environment.
In the medium term, CBRE believe that the two sectors most insulated from structural change in consumer behaviour are large experiential retail schemes with an emphasis on food & beverage, living, entertainment and a modern leisure offering and convenient local assets. The challenge for retailers is to make retail schemes more experiential and more defensive against changes in consumer preferences whilst at the same time having the most efficient and complementary omnichannel offering.
CBRE expect to see continued growth and demand this year from sectors including health & beauty, homewares, service providers, food & beverage and convenience occupiers.
It is envisaged that department stores will need to be repositioned as the life cycle of this model evolves. In some cases, this will give rise to asset enhancement opportunities, enabling schemes to offer more suitable floor plates and creating points of difference for schemes that need to evolve.
Most of the retail supply to come on stream in Ireland in 2019 will comprise extensions to, and refurbishments of, existing schemes. Of the retail schemes that currently have planning permission, it remains to be seen which ones will go on site first or indeed if revised planning permissions will be sought in some instances.
One of the remarkable trends witnessed last year was the extent to which Build-to-Rent became established as a mainstream investment sector in its own right with more than €1.1 billion invested in this sector in 2018. Indeed, investment in this sector was only compromised by a shortage of investible stock such was the volume of capital looking to deploy.
Interestingly, an increasing proportion of investors seeking to invest in the Build-to-Rent sector are now willing to look beyond core and are focussing attention on good suburban locations on key transport nodes where viability and affordability are considerably better.
Speaking at the launch of the 30th edition of their annual Outlook report at the RDS, this morning, Myles Clarke, Managing Director at CBRE Ireland said, "2018 proved to be another very strong year in terms of performance in the Irish commercial property market, both from an occupier and investment perspective. The market remained very attractive to long term investors and pension funds, keen to secure access to stable income streams. From my perspective, the extent to which Build-to-Rent increased as a proportion of overall investment spend in Ireland in 2018 was particularly remarkable. Build-to-Rent is now becoming a mainstream investment sector in its own right, with an ability to help alleviate some of the well-documented pressures in the Irish housing market."