Commercial property market makes sluggish start to 2017

Momentum has been slow in the commercial property market over the opening months of 2017 with few large assets launched for sale and not a huge volume of transactions being completed.

This is according to the latest bi-monthly report from commercial property specialist CBRE. It maintains that the slow start is “normal for the time of year and masks considerable activity behind the scenes, particularly on the development front”, and that the bulk of transactions will take place in the second half of the year.

"Appetite for prime investment opportunities has intensified noticeably over recent months with international core capital remaining active buyers, which could lead to further hardening in yields for prime high-street and office assets," says Marie Hunt, executive director and head of research at CBRE Ireland.

“However, a heightened perception of risk has negatively impacted demand for secondary assets of late but the occupier markets continue to perform well, buoyed by the strength of employment generation in the Irish economy.”

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Ms Hunt points to a “notable increase” in active requirements for office space in Dublin over recent months, including some that are Brexit-related. “Once article 50 is officially triggered [by the UK], demand is expected to escalate further.”

‘Upward pressure’ on rents

According to CBRE, occupiers with active requirements for office space include Facebook, AIB, IDA, New Relic, Allergan, Eversheds, Indeed.ie, WeWork and Huawei. Meanwhile, prime headline office rents in Dublin are steady at €673 per square metre (€62.50 per square foot) while suburban rents have seen "upward pressure" over recent months.

CBRE notes that there are now 27 office schemes under construction in Dublin city centre, totalling more than 360,000sq m (3.875 million square feet) with 20 per cent of this already pre-let.

“We don’t expect to see a large number of new planning applications for office accommodation being lodged from this point forward,” says Ms Hunt, “especially considering the volume of office stock that is under construction and the number of schemes with planning that can be delivered if demand materialises.”

The industrial and logistics sector, according to the report, is expected to generate the highest rental uplifts in the Irish commercial property market in 2017 – almost 14 per cent – at which point development “will be viable”. CBRE points to “continued strong demand” for data centres being notable for this sector.

Meanwhile, food-and-beverage occupiers are now a key driver of demand for retail space, according to the report, which notes that most retail projects underway are extension and refurbishment programmes as opposed to new-builds.

CBRE is also calling on the Government to start formally tracking online sales activity as current measures of retail spending “fail to capture a significant proportion of retail activity by virtue of excluding online purchases” while the need to have comprehensive spending data “is becoming more pressing”.

The agency also believes that last year’s record €4.5 billion investment spend in Irish commercial property is unlikely to be matched in 2017 as the “biggest frustration in the market at present is the scarcity of prime product to satisfy investor appetite”.