Commercial property specialists, CBRE Ireland today released their latest bimonthly property market report for September 2019.
According to CBRE, the occupier sectors of the Irish market remain robust despite concerns about the global economy and the possibility of a ‘no deal Brexit’, which have heightened since the election of Boris Johnson as the UK Prime Minister in July.
CBRE say that the property sector will be on alert over the next two months to determine what implications Brexit and Ireland’s forthcoming Budget on October 8th will have for the Irish economy and in turn the property sector.
In addition to several sizeable investment transactions that are at various stages of negotiation or legals in the Irish market at present, the completion of the recently announced Green REIT plc sale to new entrant Henderson Park for €1.34 billion later this year will provide a significant boost to investment spend in what has already been a busy year according to CBRE, with almost €2.1 billion of investment assets having traded in the Irish market in the first half of 2019.
Considering the strength of underlying occupier activity, CBRE say investor sentiment remains very positive with appetite heightened by the very significant yield premium that Irish real estate currently offers compared to other forms of investment, particularly taking anticipated interest rate changes and recent Government bond movements into account.
The depth of buyers for retail assets is clearly thinner than it was 12 months ago but vendors expectations are realigning and where pricing is sensible, CBRE continue to see buyers selectively looking at assets in the sector. The bulk of investor demand is however focussed on the office, industrial and residential sectors where rental growth prospects are better.
There is particularly strong depth to investor appetite for lot sizes ranging between €20 million and €50 million at present and good demand for smaller lot sizes, which are priced appropriately. The buyer profile for large lot sizes over €100 million is somewhat different with strong Asian appetite continuing to prevail, although the complexity of these transactions is adding significantly to the length of time it takes to complete transactions.
Following a busy first half to the year, during which more than 150,000m2 of office leasing activity was recorded in Dublin, the office market paused for breath during August. CBRE say this is symptomatic of the time of year but also reflects the complexity of some of the larger transactions and pre-lettings that are underway in the market, which take some time to transact.
As the traditional Autumn season officially now commences, there is a considerable volume of office transactions in legals. CBRE believe these will, in due course, provide a boost to take-up volumes although with only four months left in 2019 and Brexit uncertainty expected to heighten over the coming months, it remains to be seen how many of these sizeable transactions will complete before year-end with some now potentially falling into the first quarter of 2020.
In addition to many outstanding mandates, a number of new office requirements have materialised in recent months, which CBRE say is encouraging. With a good volume of fitted suites, serviced accommodation and co-working options available to occupiers to satisfy requirements in the short-term, there is less pressure on occupiers to make decisions on longer-term accommodation needs at present. That said, speculative office buildings that are under construction are generating considerable interest from potential occupiers once practical completion is in sight.
Forty three percent of investment in real estate in Ireland during the first half of 2019 comprised residential properties with Dublin included in the Top 10 European destinations for cross border multifamily investment in the period. In total, more than €898 million was spent on residential investment transactions in Ireland during the first half of the year - a figure that is likely to be exceeded in the second half as several large trades are completed both on and off market over the coming months.
Activity in the Irish Build-to-Rent sector continued unabated throughout July and August as various investors, promotors and operating platforms continued to look for opportunities to align themselves with developers and deploy capital into what is essentially a supply-starved market.
According to CBRE, recent transactions bring the number of residential units under institutional ownership in Ireland to approximately 11,700 - an increase of 2,340 units (25%) since the end of 2018, with 15 individual institutional owners now active in the Irish market.
The Residential Tenancies Board (RTB) has recently provided better clarity on what constitutes ‘substantial refurbishment’, in order to obtain exemptions from rental caps, which has been helpful in clearing up ambiguity for both landlords and tenants alike. As viability improves further in regional locations, CBRE expect to see some purpose-built Build-to-Rent stock starting to come on stream and being proposed in cities outside of the Dublin market in due course.
Commenting on the research, Executive Director & Head of Research at CBRE Ireland, Marie Hunt said, "Despite all the noise, recent guidance from both the Federal Reserve and the European Central Bank suggests that interest rates are now likely to remain low for a longer period of time than originally anticipated, which in turn bodes well for continued investment in the real estate asset class where income returns look attractive in relative terms, particularly in light of Government bond movements over the Summer."
She added, "As the Autumn season commences, agents in all sectors of the market are confident about prospects for the rest of the year but all are expressing frustration at the backlog of transactions that are awaiting completion, which is being attributed to delays in legals and the complexity of some of the transactions that are underway in various sectors of the market."