Claire Solon is Head of Property at Friends First (part of the Aviva Group) with responsibility for over €600m of assets across Ireland and the UK. Previous roles included Head of Estates Management with ESB where she was responsible for the ESB property portfolio, and Development Director with Bennett Construction. Claire is past-President of the Society of Chartered Surveyors Ireland (SCSI) and Fellow with the Royal Institute of Chartered Surveyors (RICS). Here Claire takes us through the outlook for 2019.
Over the course of 2018, the property market landscape continued to evolve with strong investor demand and occupier activity buoyed by continued job creation and GDP growth.
The fundamentals of the Irish economy remain robust and the Economic and Social Research Institute (ESRI) expects GDP growth of 4.5% in its outlook for 2019. They do warn, unsurprisingly, that a no deal Brexit could have a significant impact on the Irish economy.
As the market cycle matures, the search for secure, long term and stable income continues to strengthen with a growing appetite for prime industrial and logistics assets. Residential, such as PRS (private rented sector) and student accommodation have also emerged as a leading asset class with increasing demand by investors.
The appetite for assets in our capital city remains strong with most international funds and other purchasers focussing within the city.
A recent PwC/ULI (Urban Land Institute) “Emerging Trends Europe” report is ranking Dublin as 3 out of 31 to watch in relation to overall investment and development prospects for 2019. They forecast that rents and capital values are expected to increase by nearly 4%.
In the office market, prime Dublin city centre yields are stable at 4%, remaining competitive compared to peer European cities – albeit that the Irish market has historically been more volatile than our European counterparts. The office market has consistently been a star performer in recent years with rental levels in excess of €700 psqm (€65 psqft) achieved. There is still evidence of latent demand, in no small part caused by a total lack of supply of new offices during the downturn. Construction is now well and truly underway across the city and spreading regionally with largescale development and refurbishment evident in the number of cranes dotting the skyline.
Lettings to computer and technology companies made up about 40% of demand in 2018 and there have been concerns on the reliance of a dominant sub-sector of the tenancy market. “Co–working” and flexible working spaces are increasingly in demand. Organisations seek to reduce costs by encouraging flexible working or relocating to suburban areas to avail of lower rents. Friends First recently successfully let Cairn House in South County Business Park within two months of its launch highlighting the continued demand for well-located suburban office space.
The retail environment continues to change, although Ireland has been somewhat insulated from issues adversely affecting the UK and parts of Europe. Retailers must adapt and embrace the opportunities within the e-commerce sector, or deliver a unique in-store experience. Interestingly, hardware items had the one of the largest increases in terms of consumer spending indicating that house purchasing activity is having a knock on impact on sales in the warehousing sector. We have seen evidence of this trend within our retail warehouse parks in Kilkenny, Globe in Naas and Carlow.
Prime high street retail rents are at approx. €6,500 psqm (€600 psqft) with yields trending at 3.2%. A recent survey of Grafton Street properties showed that only 14% of stores on Grafton Street trade on multiple levels, which highlights the severe underutilisation of space in our capital city.
There is evidence of a smaller market for secondary provincial retail, however there are attractive yields available for those with the appetite for this risk.
There is also a focus on upgrading existing retail centres by increasing the food, beverage and leisure elements and improving the quality of the space to benefit the customer experience, such as the €10m refurbishment of the Blackrock Shopping Centre currently underway.
A shortage of modern industrial and logistics units has put increased pressure on rents, resulting in a viable industrial development market for the first time in recent years. A number of active occupier requirements are linked to the e-commerce related changes as providers attempt to create delivery efficiencies to service the needs of online customers.
Industrial prime yields are estimated between 5.1% and 5.5%, though it should be noted that there are significant variables in this market depending on location, unit, strength of the tenant covenant and lease terms. Industrial rents are likely to increase over 2019 as the demand for higher quality space continues. New “geo-blocking” legislation was enacted last year, which gives shoppers the same access to goods and services within the EU irrespective of location, and this should increase further the demand for Irish logistics and distribution assets.
Expectations for 2019
The Brexit factor continues to be a dominating issue within the market, and events are being monitored with interest. To date however we have not seen a significant impact in the commercial property space other than the positive effect of increased office take up in the Dublin office market, although this is hard to definitively gauge. With demand remaining strong for office space, the sector should continue to perform well for the next 12 months. Office rents are likely to stabilise around existing levels as the supply/demand imbalance is alleviated.
Looking forward, capital returns are likely to moderate and a reliance on income stream will increase in importance. A well-diversified portfolio with a reliable rental income profile and strong asset management mechanisms will be key.
Regionally, growth is expected in the Cork and Galway property markets, particularly in modern offices.
Demand continues for “non-traditional” sectors such as residential and healthcare. Both these sectors along with industrial/logistics are expected to dominate investment flows over the course of this year.
Ireland is a small pond in a very large global ocean, however the domestic property market looks set to continue to perform well, albeit at a slower pace, throughout 2019.
Please note this article is for information purposes only. The views expressed are those of the author and not Cantor Fitzgerald Ireland Limited (“CFIL”). CFIL has not contributed to this article in any way. It is not intended to and does not constitute personal recommendations/investment advice.
To speak with a Portfolio Manager or Account Executive, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.
Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.