Johnny Horgan: Commercial property prospects for 2016

What would you like to see happening in the commercial property market next year? While efforts are under way to address shortages of office accommodation and hotel stock in the capital, it is essential that our ability to attract FDI and in turn create additional employment is not compromised by a scarcity of housing. I would like the Government to prioritise this issue as a matter of urgency over the next 12 months.

Debt-funding for speculative development is expected to remain elusive for some time, which will result in an increasing number of joint ventures and forward-funding projects materialising where experienced developers and promoters will team up with international capital providers to deliver office schemes. I think this partnership of local expertise and institutional capital will help manage the office development pipeline in a responsible way

The ownership structure of the Irish retail market is now radically different to what it once was. I look forward to these specialist retail landlords implementing targeted asset management initiatives and breathing new life into retail schemes throughout the country.

I would encourage planners to allow increased amounts of food and beverage in locations as the usage patterns of shoppers have evolved.

Where are the best investment opportunities at this stage? With prime yields close to a trough, the Irish investment market is clearly seen as core, rather than opportunistic. Investors are increasingly focusing on maximising income generation from existing assets and exploring potential development opportunities.

I think the best investment opportunities are in Dublin suburban offices, prime high retail properties and prime industrial assets. I think these sectors are likely to offer the most attractive returns in 2016 considering the potential for rental growth as passing rents are still below buildable rents in many locations.

How long more do you expect the sales boom to continue? One of the key differences in 2016 will be a lower volume of transactional activity as the market moves back to more normalised trading levels following three years of frenetic deleveraging activity.

As deleveraging efforts wind down, it is inevitable that a greater proportion of transactional activity in the investment market will emanate from secondary trading, as some recent buyers such as private equity firms implement their exit strategies and many of the assets and loan portfolios purchased over the last number of years are retraded. We expect to see continued activity in terms of loan and asset sales for another two years at least.

What changes are we likely to see in the market over the next 24 months? The effects of legislative change introduced in 2010 allowing for upward and downward rent review clauses in leases will really begin to materialise this year. Indeed, we expect to see an escalation in rent review negotiations and arbitrations in 2016.

It remains to be seen if tenants facing significant rent increases by virtue of signing leases when office rents were at a trough will opt to remain in their existing buildings or seek to sub-let or assign leases in order to relocate to more affordable accommodation, which could ease supply pressures to some degree.

We expect to see a number of new international retailers entering the Irish market in 2016.

The biggest challenge this year will be securing stores for retailers in many of the most sought-after schemes and high streets considering that many are now close to, or at, full occupancy.

We are likely to see the return of key money being paid for leases in prime locations during 2016 as a result of this growing competitive tension.

Johnny Horgan is head of CBRE's capital markets division