“The office investment cycle may be in its mature stage, but the level of yields and income characteristics are not suggestive of any froth.”
That was the message from Goodbody chief economist Dermot O'Leary to the more than 150 commercial real estate professionals in attendance at a event hosted by QRE Real Estate Advisers and Capital Flow at Dublin's RDS last Friday.
Commenting on the broader outlook for the Irish economy within the context of the UK’s imminent departure from the EU, Mr O’Leary said: “The US economy is more important than Brexit in the medium term. The Irish economy has been on a multidecade journey since taking up EU membership to reduce its dependence on the UK economy, and while Brexit is bad for the Irish economy, it will be beneficial to our cities through higher foreign direct investment from both the US and the UK.”
Looking at the state of play in the commercial real estate sector, QRE managing partner Conor Whelan told delegates at the Future Focus seminar the investment market was “very much a two-tier market” at present.
“While international funds continue to chase long-term, low-yielding income in Dublin city, the sub-€ 20 million market, which is a good barometer of local sentiment, has softened over the first half of 2019, in the context of turnover,” he said.
Stimulate activity
“Sales data would imply that investors perceive the market as lacking real value, but a slight adjustment of 50 to 100 basis points, dependent on location and asset class, would likely stimulate activity in the sector. If an investment property is pitched to the market at a realistic guide price, it will generate sufficient interest and will always find its level.”
A key topic for debate was the appetite among lenders to continue to provide funding at current price levels. On this, Capitalflow’s director of lending, Shane Flood, said: “We continue to see high demand for credit with a significant pipeline across a wide range of sectors nationally. While we continue to maintain prudence in our lending decisions, we are keen to continue lending in the right areas to support the current demand. Income yield remains attractive relative to other asset classes and we are seeing a shift to increased regional growth where value in the market remains high.”
