What would you like to see happening in the commercial property market next year? Sustained demand from investors and a steady supply of assets for sale. 2015 saw several new entrants and we need this trend to continue. In offices, it is imperative there is an increase in construction. There is currently 2.3 million sq ft in Dublin city centre that has been granted planning permission, and this needs to progress to being on-site as soon as possible. I would like to see the recovery continue at a sustainable level. At this stage in the cycle, we do not want to see any bubbles. Stable increases in values and rents with the release of pipeline stock to the market at a pace that meets occupier demand is preferable. I would also like to see banks resume lending for development. Development finance is a key component for a functioning property market.
Where are the best investment opportunities at this stage? There are some significant investment opportunities available in Irish real estate, but these vary depending on the type of investor.
For those with a riskier profile, value opportunities exist in secondary assets. This includes secondary Dublin assets, or assets in provincial locations across all sectors. Opportunities also exist for Dublin office assets that have refurbishment potential and assets that have a significant asset-management potential. We are expecting strong rental growth in industrial property so this should also present an opportunity. Assets with scalability also present interesting options.
How long more do you expect the sales boom to continue? We are in the final stages of one of the largest de-leveraging programmes the world has ever seen. It is inevitable that sales activity will decline when this is completed. However, we still have a fractured and dislocated ownership with a significant volume of assets being in non-traditional property ownership. One of the consequences of the property crisis has been the internationalisation of the Irish market, so while volumes will decline, Ireland will remain a destination for global capital, which means activity levels should remain strong into the future.
What changes are we likely to see in the market over the next 24 months? 2015 was an exceptional year for Irish real estate. It is unrealistic to assume that market activity will continue at the same pace. Loan sale activity will decline. In offices, we will see the first new building in five years delivered in Q1 2016. We expect 400,000sq ft of office space to be delivered in 2016, (of which 55 per cent is pre-let) and 1.1 million sq ft in 2017. The 10-year average city centre take-up is over 1.0 million sq ft per annum and therefore there will still be gaps in supply if demand remains strong. We will see an increase in the number of refurbishments. There will be an increase in the trend of international capital partnering with local development platforms to deliver space.
John Moran is chief executive officer of JLL Ireland