Brexit could be good news for Irish commercial property if the anticipated relocation of companies from the UK to Ireland becomes a reality, according to new analysis from CBRE’s.
However, the research bureau's outlook for 2017 predicts that total returns, rental growth and investments will all be lower than in 2016, following a period of sustained growth for the Irish market.
‘While the Brexit result will, for the most part, be negative for the Irish economy and lead to GDP forecasts being downgraded somewhat, one of the sectors that will potentially benefit is the commercial property sector, if anticipated Brexit-related relocations from London materialise, as we expect they will, in 2017,’ said Enda Luddy, managing director of CBRE Ireland.
Rental growth in all sectors in Dublin is forecast to be significantly higher than the European average in 2017. Prime Dublin office rents will peak in 2017, as supply increases for the first time in over five years, with 225,000 m2 of new office stock due for completion in the capital this year, 25% of which has already been pre-let. ‘Any deterioration in office demand from the USA in 2017 should be compensated for by an increase in Brexit relocation activity from the UK,’ the report states.
The logistics sector will see another year of substantial rent increases and high demand. Last year prime industrial rents rose by 25% due to the shortage of modern industrial space in the Dublin market. This year rents could increase by a further 14%, according to CBRE, spurring speculative development activity and increasing the viability of new schemes.
Market easing
Last year’s investment market turnover figure of over €4.5bn ‘surprised on the upside’ and was skewed by some particularly large transactions, with over 223 deals above €1m. Investors focused on retail, with investments in the sector accounting for 50% of total spend. CBRE expects interest in the sector to continue this year, with an increase in retail planning applications. The hotels sector was also buoyant in 2016, with 66 sales concluded for a total of over €805m.
Looking beyond the €4.5bn figure, it must be acknowledged that ‘returns from Irish commercial real estate have been slowing for some time now following the extraordinary growth experienced in 2014 and 2015,’ said Marie Hunt, head of research at CBRE Ireland. ‘This easing is expected to continue in 2017, particularly considering the unexpected tax changes announced in the budget, which are likely to have a negative impact on pricing this year.’
Prime yields are expected to remain stable this year, and returns, likely to be in single digits, will be generated largely from income. ‘Irish real estate remains a sought-after investment class, although, considering the more uncertain backdrop, investors will be focused on achieving safe, reliable returns as opposed to putting capital at risk,’ Hunt said. The biggest challenge is likely to be the scarcity of product, as demand will outstrip supply.
