New research from CBRE suggests a slowdown in the amount of commercial property product coming on the investment market as the phase of large portfolio sales comes to an end.
"Many of the assets due to be formally launched for sale over the coming months are relatively small in size compared with the large assets and portfolios that have traded in the last two-year period," said Marie Hunt, head of research at CBRE.
“But Irish real estate, which offers the potential for significant rental growth, remains attractive to institutional investors.”
CBRE said prime rents had continued to increase in all commercial property sectors over recent months and were firmly on target to reach its year-end forecasts. Prime Dublin office rents, for example, have increased to €619 per sq m (€57.50 per sq ft) in recent weeks and are on target to reach €700 per sq m (€65 per sq ft) by year-end.
Office take-up
“During the first three months of 2016, office take-up in the capital reached 52,442sq m (564,480sq ft) which pushed the overall vacancy rate in Dublin to 7.7 per cent. CBRE recorded 50 individual office lettings in Q1; almost two-thirds of these were to Irish companies while seven of the 10 largest lettings were to companies expanding,” Ms Hunt said.
The demand for Dublin office space is now so robust that CBRE says there are 27 office schemes under development in the capital.
Another sector showing strong levels of activity is development land where 28 sites were sold during Q1 for some €350 million.
“There is a considerable weight of capital chasing development opportunities at present with institutional buyers and listed vehicles particularly active,” Ms Hunt said.
“However, many of the sites being offered for sale are not of significant scale, which is frustrating buyers, particularly considering the not insignificant supply-demand imbalance in sectors of the economy such as housing.”
Student housing
CBRE also reports a huge focus on sites for “alternative” uses such as student housing.
While there is undoubtedly appetite for additional purpose-built student housing in Dublin , CBRE is urging developers to proceed with caution considering the vast number of student housing schemes now entering the planning process on the basis that this sector is quite specialised and to a large degree untested in a Dublin context.
In the industrial and logistics markets, take-up in Q1 reached 64,747sq m (696,930sq ft).
“This is a strong result but down compared to the bumper activity recorded in this sector in 2015,” CBRE said. “It demonstrates the extent to which the scarcity of modern industrial accommodation in some core locations is impacting on transactional activity at present.”
The agency found that, although prime industrial rents have increased to €80 per sq m (€7.45 per sq ft) in recent months, they have not yet recovered to a level that renders new development viable.
Retail is continuing to recover, according to CBRE, and growth in the sector which first began to emerge in the Dublin market last year is now becoming increasingly evident in secondary and provincial locations. However, much of the demand for locations outside Dublin is emanating from a relatively small pool of retailers.
