"2018 was another very strong year in terms of performance in the Irish commercial property market. One of the key standouts was the growth in the volume of demand for Build-to-Rent opportunities."
On the back of strong job creation, activity in each of the occupier sectors of the market was strong with the Dublin office market having a particularly buoyant year, supported by several large lettings to occupiers in the technology sector, several of which were pre-lettings. The growth in activity by flexible office providers during 2018 was particularly noteworthy.
Brexit-related activity added an extra layer of activity in the office sector and also the industrial & logistics sector in the capital during 2018. Transactional activity in the industrial &logistics sector has been compromised for several years by a shortage of modern buildings with most development activity comprising ‘Build-to-Suit’ projects. However, industrial rents rose to a level in 2018 where new development was again viable and as a result, we saw the first signs of speculative development occurring in this sector in Dublin.
Encouragingly, several of the new buildings have now been let prior to practical completion, such is the demand for modern stock. Demand for data centres and data centre sites was also strong throughout 2018.
Occupier activity in the retail sector of the Irish economy was considerably better than in the UK and elsewhere in Europe over the last 12 months, supported by continued job creation, strong tourist activity and increases in disposable income in the domestic economy. Appetite for any core schemes that were launched during the year was encouraging with particularly strong appetite from the food & beverage sector and the health & beauty sector. However, as the year progressed, it became evident that the pool of investors seeking investment opportunities in the retail sector had thinned considerably, particularly for secondary assets, as investors reacted to structural trends in the retail sector globally.
Investor appetite for other sectors continued at pace throughout 2018 however, with several high-profile transactions completed during the last year including several forward commit and forward fund transactions. The market remained very attractive to long term investors and pension funds, keen to secure access to stable income streams. Encouraged by a number of large-scale investment opportunities, there were several new entrants to the Irish investment market during 2018 including some Asian investors who acquired their first Irish assets in the last 12 months.
Strong investor demand
Some yield compression occurred during the year. Prime yields in Ireland ended 2018 at levels that remain very attractive compared to other European jurisdictions, with prime offices and multifamily trending at approximately 4%, prime high street trending at 3.15% and prime industrial trending at 5.1%.
We also saw strong investor demand for specialist sectors including healthcare and student accommodation during the last year. One of the key standouts of 2018 was the growth in the volume of demand for Build-to-Rent opportunities following changes to the planning code which had a positive impact on viability in this sector. The extent to which Build-to-Rent increased as a proportion of overall investment spend in Ireland in 2018 was remarkable.
Build-to-Rent is now becoming a mainstream investment sector in its own right, with an ability to help alleviate some of the well-documented pressures in the Irish housing market. Although there was an improvement in the supply of new homes during 2018, it remained considerably below the volume actually required and the proportion of units comprising apartments remained relatively low.
2018 was a record year for the development land sector in Ireland, with transactional activity the highest in a decade and significantly boosted by several strategic land sales that completed during the year. There was evidence of increased depth to the development land sector in 2018 with bidders from a myriad of different sectors bidding competitively on assets that were launched for sale both in Dublin and regional cities such as Cork.
Meanwhile, the hotel sector had a busy year also, supported by strong tourist numbers and buoyant business activity. Transaction volumes in this sector were boosted by the completion of some forward fund transactions and portfolio transactions during the year with the volume of single asset hotel sales in 2018 lower than had been anticipated. To some degree, the decision not to bring hotels to the market was influenced by the strong underlying trading performance that many of these properties enjoyed during 2018, something that also had a negative impact on the number of Dublin pubs offered for sale over the course of the last 12 months.
All in all, it was a solid year’s performance that lays the foundation for what looks certain to be another healthy year for the commercial property market in 2019 despite the potential threats, both global and domestic, that loom large.
Outlook 2019 Report
The CBRE Ireland Real Estate Market Outlook 2019 report provides insight on the key trends our experts think will affect the Irish property industry over the next 12 months.
READ THE FULL REPORT HERE