CBRE: Commercial property recovery to expand beyond Dublin in 2015
MORE international investors will buy property in Ireland in 2015 as the recovery moves out beyond Dublin and into the rest of the country, say CBRE.
In its preview of 2015, the broker said rents and commercial property values will continue to rise in 2015, as the shortage of suitable office in particular remains acute.
In line with other market watchers, the company believe renting a top level office block in the prime areas of Dublin will cost as much as €55 per sq foot by the end of this year, as the lack of new construction continues to cause sever problems for the market.
That shortage will also push yields – a measure of profitability – down by as much as 50 basis points. Office yields have fallen by more than half in the last three years to below 6pc.
Interestingly, CBRE expect a number of new funds to enter the market here, even though the so-called “opportunistic” window for easy profits has passed. The presence of large portfolio sales will continue to attract new money, the company claimed.
“An increasing number of investors will focus on intensive asset management strategies in 2015 in order to retain and enhance the value of properties purchased. In some cases, this will involve re-development or refurbishment programmes but will also include a combination of re-gearing existing leases, reducing vacancy and negotiating new lettings.
“Delayed capital expenditure over recent years on assets such as retail parks and shopping centres will also give rise to opportunities for many of the investors who are focussed on acquiring retail assets,” it claimed.
While the shortage of new construction will continue, more finance is likely to become available for new builds this year for the first time since the crash.
"Last year saw record levels of fundraising for commercial real estate investment across Europe and we expect to see considerable volumes of cash and equity continuing to be deployed over the course of the next 12 months,” said CBRE’s Marie Hunt.
“With Eurozone interest rates expected to remain low for the foreseeable future, the relative yield arbitrage offered by real estate investment will remain, even if prime yields contract further over the course of the year as anticipated. Ireland’s superior economic prospects compared to the rest of Europe coupled with rental growth expectations augur well for investor appetite and Irish real estate performance in 2015,” she added.
Company MD Enda Luddy added that the recent increases in values here “are coming off a low base following an exceptionally severe crash and values still remain considerably below peak levels in all sectors”.
Overall, CBRE believe commercial property worth €4.58bn changed hands in Ireland last yea, with 243 deals worth more than €1m That was by far a record for the industry.