SCSI: all property sectors to see rents rise this year
Rent increases are expected in all sectors of the commercial property market across the country this year, according to the latest commercial property survey by the Society of Chartered Surveyors Ireland (SCSI) of its members.
Thanks to an acceleration in Cork city, the strongest growth is forecast in this area of Munster for four key sectors: office, retail and industrial rents, as well as for development land values.
Munster office rents are expected to see average growth of 5pc but in Cork city prime grade A floorspace could attain 7.2pc. While retail rents in the province could rise by 3pc, prime Cork retail could see an increase of up to 6.6pc. Industrial rents in Munster could average 8pc rental growth.
In Dublin, prime office and retail rents are expected to rise by 5pc and 6pc respectively in 2018, while prime industrial rents in the capital are expected to rise by 7pc, which is a slightly slower pace than surveyors expected in the 2017 survey.
Over 400 estate agents and chartered surveyors from all over the country took part in the survey, which was researched by Future Analytics Consulting.
Commenting on the findings on behalf of the SCSI, James Mulhall, managing director of Murphy Mulhall, said that the widening divergence between Dublin and the rest of the country was an issue which needed to be addressed.
"When you see that prime retail rents in Dublin are €6,000 per square metre, over six times the national average and prime office rents are €638 per square metre, over three times the national average, you realise the scale of the rental imbalance which exists," he said.
"At the other end of the scale, Sligo has the highest commercial vacancy rates in the country of 19pc. With current rent levels in Dublin heading back towards 2007 levels, we need Cork, Galway and other cities to provide viable alternatives for sustainability in the overall commercial property market.
"One area where surveyors are slightly more optimistic this year is Brexit, but once again it's very much dependant on location - 39pc of surveyors in Dublin believe Brexit will have a positive impact on business activity, but this drops to 9pc in the rest of Leinster and zero in Munster and Connacht/Ulster. Our members in the border region especially believe weaker sterling and market uncertainty has already impacted property investment in the area."
Mr Mulhall added: "The other main challenges identified by surveyors for the year ahead are the shortages of suitable property, the rise of online shopping (over half of surveyors believe online is having a major impact on retail) and the effects which the rising costs of housing may have on business relocation decisions and FDI generally, particularly in Dublin."
Most, but not all surveyors expect office supply and demand to increase this year. As many as 70pc of surveyors in Dublin believe the availability of office space will increase this year. Nevertheless, over half believe vacancy rates will continue to decrease. Mr Mulhall explained that demand is such that a lot of the supply has already been reserved in pre-lets.
In Munster, 62pc of surveyors believe the availability of office space will increase, while 92pc believe vacancy rates will decrease. In Connacht/Ulster, 64pc of surveyors believe take-up will increase and vacancy rates will decrease. Surveyors in both Dublin and Munster said the main issue was the shortage of quality office space. By contrast, in the rest of Leinster, 86pc of surveyors said they believed availability will remain the same while they saw their main challenge as lack of demand.
James Mulhall, an office market expert, said one of the key trends identified for 2018 was in the co-working/flexible office space.
"The surge in growth of co-working and flexible workspaces over the last 12 months is clearly changing the dynamic of the office market. It is too early to judge the real impact, although predictions of the demise of the traditional office are almost certainly premature. The co-working revolution is delivering much-needed flexibility for occupiers who are struggling to find this through conventional leases.
"It also creates transparency and some efficiencies on costs."
In the retail sector, Dublin's median prime retail rents of €6,000 per sq m, are almost six times those in Connacht/Ulster at €1,150 per sq m and in Munster at €1,100 per sq m. In the Rest of Leinster, they are as low as €340 per sq m but these are predicted to grow the most this year - by 9pc as the province is playing catch up with the other regions.
Mulhall said 56pc of respondents ranked online shopping as either the first or second most important issue impacting the retail market in their region for 2018. Other key challenges are low tenant demand and unsuitably-sized floor plates.
After industrial recorded the strongest rental growth in 2017 at 11pc, this year potential growth in all regions is expected to be hampered by a lack of modern warehouse space and this is having a knock-on effect on rental growth in some locations.
The shortage of supply is felt most keenly in Connacht/Ulster, where 75pc of surveyors expect supply to be less than demand for prime industrial space both under and over 500 sq m.
Mulhall said while there are opportunities, the question is - can we avail of them?
"The changing face of retail and its knock-on effects into logistics will significantly impact the industrial sector, with the prospect of new and expanding distribution and delivery centres throughout Ireland.
"If there is continued uncertainty regarding the movement of goods from the UK following its departure from the EU, there will be increased demand also arising from this. Therefore, it's essential that there are suitable modern logistic facilities available if we are to take full advantage of these situations," he concluded.
Increases in all development land categories are also forecast for 2018 with average residential development land values expected to increase by 11pc, office development land by 6.8pc, retail development land by 5.5pc and industrial development land by 7.9pc.
The growth rates will vary on a regional basis from an average of 6pc in Connacht to 10pc in Munster, with Dublin land values increasing by an average of 8pc, and Leinster by 7pc.