Incentives needed to generate top class office development for overseas firms
The first half of 2013 was positive for the commercial property market, with €612m of Irish real-estate investment deals being agreed, up from €557m for all of 2012. Investment is expected to reach at least €1.2 billion, if not more, by the end of the year.
According to the latest SCSI/IPD Quarterly Property Index, commercial property returns rose 2.3pc in quarter two – their highest in almost six years.
High-profile purchases have been made by a number of overseas investors including Kennedy Wilson, who bought the former Treasury Holdings portfolio for €306m and the Clancy Quay development for approximately €80m, as well as Israeli-born investor Igal Ahouvi, who bought several retail properties around the country.
Other significant transactions included the IPUT acquisition of the A&L Goodbody building for just over €57m and Bishops Square by King Street Capital for €65m.
There have also been a number of successful sales from distressed bank loan books, increasing interest from private equity buyers and the launch of Ireland's first Real Estate Investment Trust (REIT).
The rental sector has also benefited from the large number of international tenants who have been relocating to Ireland over the past 18 months due to government tax incentives. Improvements in the TMT (Technology, Media and Telecommunications) and financial sectors have also led to growing demand for office space.
According to the SCSI/IPD Index, rental values in the Irish office and industrial sectors grew in the second quarter by 0.2pc for offices and by 1.6pc for industrials for the first time in five years.
All of this has translated into a stabilisation in the performance of the commercial property market and an improvement in investor sentiment.
However, a lack of supply of suitable stock of offices remains a key challenge in the market in terms of our international competitiveness.
IDA chief executive Barry O'Leary recently warned about a lack of modern office space in the order of 70,000-120,000 sq ft, which is required by multinationals.
According to the IDA, the ready supply of the right type of office accommodation is a significant factor for multinationals making investment decisions in Ireland, and the quick turnaround of the PayPal creation of 1,000 jobs in Dundalk was attributed in part to the fact that the building was already there.
As a country heavily reliant on foreign direct investment, it is crucial that plans are put in place now to ensure that we can meet future demand from multinationals.
While there was a significant level of building output during the boom, there wasn't enough construction of the right type of buildings. Furthermore, there has been very little construction of new office space over the past couple of years.
One way of addressing the shortage is to prioritise and fast-track the building of suitable office accommodation on 'shovel-ready' sites around the cities.
Plans should also be put in place to speed up the release and building of some of NAMA's commercial property portfolio of office stock on the market.
Another option is to incentivise the refurbishment of older office stock to encourage private and institutional owners to invest in upgrading the stock to modern standards.
Building costs have fallen by about a third since the peak and a reduction in the VAT rate to 5pc on retrofitting office stock could improve office standards in a cost-effective and efficient way.
It is vital that we have the appropriate facilities in place to continue to attract investment from international companies and to continue to develop our reputation as a location of choice for multinational companies across the world.
Pauline Daly is senior vice president of the Society of Chartered Surveyors Ireland (SCSI) www.scsi.ie