Sunday 30 April 2017

French and Germans to drive Irish prime property values

Ballymore's Dublin Landings scheme is one of 27 office projects under construction in the capital
Ballymore's Dublin Landings scheme is one of 27 office projects under construction in the capital

Donal Buckley

While momentum in the commercial real estate sector has been slow to build so far this year, a combination of investor demand from international core capital and for office accommodation from a number of major companies is expected to see prime property values resume their upward trajectory in the coming months.

That's the view from CBRE in its first bi-monthly report for 2017. They believe the bulk of transactional activity across most sectors of the market will come in the second half of this year as opposed to the first six months as "considerable activity [now taking place] behind the scenes" comes to fruition.

Outlining her expectations for the market and for prime asset values specifically, CBRE's head of rsearch, Marie Hunt, said: "Appetite for prime investment opportunities in the Irish market has intensified noticeably over recent months, with international core capital remaining active buyers, which could actually lead to some further hardening in yields for prime high street and prime office assets in due course."

Referring to the outlook for the office market and for the Dublin market particularly, Ms Hunt added: "The occupier markets continue to perform well, buoyed in particular by the strength of continued employment generation in the Irish economy. Worthy of particular mention is a notable increase in active requirements for office accommodation in Dublin over recent months, with several mandates in play at present including some that are specifically Brexit-related. Once Article 50 is officially triggered, demand is expected to escalate further."

Among the major employers with active requirements for office accommodation presently, Ms Hunt noted, are Facebook, AIB, IDA, New Relic, Allergan, Eversheds, Indeed, WeWork and Huawei.

While CBRE reports that there are 27 office schemes currently under construction in Dublin city centre, totalling more than 360,000 sq m (3.9m sq ft) between them, they don't expect to see a large number of new planning applications for office accommodation being lodged from this point forward given the volume of office stock already being built and the number of schemes with a grant of planning that can be delivered if demand materialises.

And while the latest MSCI Irish Property Index shows total returns in the Irish commercial property market reached 12.4pc in 2016, CBRE highlights the fact that the pace of those returns has slowed in each of the last eight quarters as the market reverts to what it describes as "more normalised trading levels".

"The biggest frustration" the market now faces, CBRE says, is the "scarcity of prime product to satisfy investor appetite".

The €4.5bn in sales recorded last year was largely dominated by the disposal of a series of 'big-ticket' assets such as the Blanchardstown Centre and Liffey Valley Shopping Centre, which sold for €950m and €630m respectively. Last year's performance is unlikely to be matched this year now that deleveraging activity has slowed and in the absence of a significant number of 'trophy' sales.

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