Which sectors of the market will be most active next year?
In terms of sectors, we are expecting to continue to see strong demand across offices and logistics. Solid occupier market fundamentals are reinforcing investor appetite in these sectors.
There also continues to be an increasing focus on alternatives, with investors looking across at sectors (eg. hotels, healthcare and student housing), but particularly the private rental sector (PRS). This will continue into 2018 and PRS opportunities that come on to the market will be met with strong demand and aggressive pricing.
Have rents and yields peaked across the asset classes?
Rents are forecast to remain stable in 2018 although there may be exceptional cases for specific buildings where rents may be achieved above existing levels. Industrial will see the most rental growth, caused by the supply-demand imbalance in the sector.
We expect to see pricing stabilise in 2018, but there may be yield compression in specific cases that warrant it, such as a prime new office building, or where value-add can be achieved through clever asset management or refurbishment.
Where are the best investment opportunities at this stage?
Prime core Dublin 1 and Dublin 2 office buildings continue to attract international interest from investors seeking returns of 4 per cent and with limited investment risk. Others in search of greater risk and returns are looking at opportunities in the Dublin suburban office market, or at adding value to assets through refurbishment or redevelopment or asset management.
For other non-Dublin or secondary assets, there is appetite from investors for opportunities where good demand and supply dynamics exist, that are in a good location, and are supported by strong catchments and investment fundamentals.
As with 2017, the best opportunities are likely to be in the industrial investment sector, or by undertaking direct development in offices or logistics.
One thing to watch out for in 2018?
2017 was a smoother year than originally anticipated, apart from the 200 per cent increase in Stamp Duty that was introduced at the end of the year. In forecasting what is expected for 2018, we need to remember property is a cyclical investment, but for now, we remain in a benign interest rate environment, and occupier markets remain robust.
We cannot overlook the negative impacts of the housing crisis and our international competitive position. Therefore I see growth slowing to more sustainable levels, but advise caution, and to watch Brexit negotiations closely.
John Moran is managing director and head of investments at JLL
