Demand for Irish property remains robust
Over €930m of investment transactions occurred in Q1 2018 with overseas investors accounting for over 75 per cent
The Irish property market continues to perform well with strong investment demand and occupier activity buoyed by continued job creation as evidenced by recent unemployment figures. Over €930m of investment transactions occurred in Q1 2018 with overseas investors accounting for over 75 per cent. Brexit seems to be yielding positive impacts for the office market with 42 Brexit-related mandates fulfilled in Ireland to date, according to the IDA.
In the office market, prime Dublin city centre yields are stable at 4.0%, remaining competitive compared to peer European cities, albeit that the Irish market has historically been more volatile than our European counterparts. Recent research from CBRE ranked Dublin 27th in terms of global occupancy costs, with prime rents at €700 psqm (€65 psqft).
The IT and Communications sector continue to dominate the occupier market with ‘co -working’ and flexible working spaces increasingly in demand. Organisations seek to reduce costs by encouraging flexible working or relocating to suburban areas to avail of lower rents. We recently successfully let Cairn House in South County Business Park within two months of its launch highlighting the continued demand for well-located suburban office space.
The retail sector is experiencing increased sales, consumer sentiment and footfall, which is notably different to the UK market. In Ireland, sales grew by 4.7% in the 12 months to May while retailers adapt to the e-commerce evolution. Interestingly, hardware items had the largest increases indicating that house purchasing activity is having a knock on impact on sales in the warehousing sector.
Prime high street retail rents are at approx. €6,500 psqm (€604 psqft) with yields at 3.15%. A retail analysis by Cushman & Wakefield highlights that only 14% of stores on Grafton Street trade on multiple levels. The upper floors of properties within the city centre represent huge potential, but converting them into useable space can be difficult in terms of building and fire regulations.
There is also a focus on upgrading existing retail centres by increasing the food, beverage and leisure elements and improving the quality of the space to benefit the customer experience, such as the €10m refurbishment of the Blackrock Shopping Centre.
A shortage of modern industrial and logistics units has put increased pressure on rents, and mean that development is now feasible again with a number of developers progressing plans for new units. A number of active occupier requirements are linked to the e-commerce related changes as providers attempt to create delivery efficiencies to service the needs of online customers.
Data centres is another sub-sector of the market which has quietly undergone huge growth in recent years. It has been estimated that there are 46 data centres in operation in Ireland with demand increasing, though sourcing sites can be challenging.
Prime industrial yields for industrial remain unchanged at 5.5% with prime Dublin rents now at approx. €102 psqm (€9.50 psqft).
Alternative real estate options including hotel, Private Rented Sector (PRS), and student accommodation are also attracting strong investor appetite.
The recent ECB announcement that interest rates in the Eurozone are expected to remain at current levels until the middle of 2019 will ensure that the attractive arbitrage between ten year bonds and real estate yields remains. Capital appreciation is expected to continue but at a slower pace, with income providing the main source of returns for property. Overall, favourable economic prospects should continue with demand for Irish property remaining robust from investors and occupiers alike.
Analysis based on data available up to June 2018.
The views and opinions expressed in this article are those of the author.