A new report by Cushman & Wakefield has found that the opening quarter of 2019 was a very positive period for the Irish commercial property market as reflected by solid capital flows into the investment market and positive occupier and development activity noted in the office market.
The Irish investment market experienced a solid opening to 2019, recording a turnover of €507.8m across a total of 29 deals in the first quarter. The largest transaction of the quarter was the off-market sale of Charlemont Exchange, Dublin 2. The large office asset, located in the heart of the Central Business District (CBD), was acquired for €145m by the South Korean based investment fund, Vesta Management.
Charlemont was the only property which sold in the quarter in the €100m+ price bracket, while in comparison, there were three transactions in this price bracket in quarter one 2018.
Other transactions of note in the quarter include the prime retail sale of 7-9 Henry Street for €44.2m to investment management group DWS, and ‘The One Building’, Dublin 2, which sold for €44m to BNP Paribas.
Not surprisingly, the office market dominated transaction activity for yet another quarter with continued interest from both domestic and foreign investors. The office market accounted for 54% of total value spent in the first three months of the year, approximately €275.5m.
Notably, capital targeting residential assets totaled €29.1m, with an average lot size of €9.7m. Conversely to what headline figures suggest, market intelligence indicates that demand for residential assets is strong, indeed, it is likely to be most sought-after asset class after offices in the year. As the stock of residential assets is short in supply, forward funding deals are accounting for a larger proportion of transactions.
The opening quarter saw two residential forward fund deals, North Quarter, Ballymun, for €46m, and Taylor Hill and Semple Woods for €38.2m. Such transactions bring total residential investment to over €113m. It must be noted, these transactions have not been included in this analysis, as they fall outside the traditional definition for investments.
The report finds that the occupier market continues to perform. Dublin recorded a busy start to 2019, with 58,650 sq m of space occupied in the opening quarter and development activity reaching a new peak. Emphasizing the underlying strength of demand, pre-committed space under construction remained at record high proportions for the current cycle, while the volume of signed and reserved standing stock also sat well above the long run average.
A total of 470,350 sq m of space was under construction at the end of March, considerably above the long run average of over 200,000 sq m. Three quarters of this space was located within the CBD. Of this, an impressive 51% is pre-let, with a further 13% reserved.
Also of note, close to 80% of the space due for delivery this year, is pre-committed. Examples of such include the Central Bank’s pre-let of a combined 18,350 sq m at No. 5 and No. 4 Dublin Landings, Dublin 1 and 2,330 sq m pre-committed by Qualtrics at Chatham & King Street, Dublin 2.
Cushman & Wakefield say despite development activity continuing at pace, availability in the Dublin office market declined marginally in annual terms resulting in a net vacancy rate of 6.5%. The consistently low net vacancy rates provide the underlying backdrop for anticipated further inflation in prime office rents. Having increased by 4.2% in 2018, prime rents remained unchanged in the opening quarter at €646 per sq m. Forecasts by Cushman & Wakefield suggest a rise to €673 per sq m at year end.
Commenting on the market, Managing Director of Cushman & Wakefield, Aidan Gavin said, "All indications to date suggests that 2019 will be another vibrant year for the commercial property market with current forecasts suggesting approximately €2.5bn of capital will be invested in commercial property during the year. This could rise to over €4bn if the sale of Green REIT was to complete as an investment transaction."
He added, "This will be underpinned by the continued strength of demand in the office sector, with approximately 250,000 sq m of space expected to be occupied in Dublin over the course of the year. This is placing further upward pressure on prime rents, which we anticipate will increase further to €676 per sq m by year end."