Which sectors of the market will be most active next year?
On the occupier side, 2018 will be another strong year for the office market, with a number of substantial occupier deals already in the pipeline. We expect the retail market to be more subdued, with perhaps the exception of the food and beverage end of the market. The industrial market will continue to be dominated by a handful of large occupiers focusing on design and build solutions.
The change to the CGT exemption holding period should encourage some investors to consider an early exit. As a result of this, we anticipate churn of office, regional retail and in particular development land. Appetite for large multi-unit residential investments remains strong although availability is limited.
Have rents and yields peaked across the various asset classes?
In relation to office rents, my sense is we’re nearing the top of the rental growth cycle. The annualised rental growth figures for Dublin city centre offices are staggering (33.6 per cent in 2014, 20.14 per cent in 2015 and 5.35 per cent in 2016) but it’s clear the pace of increases has slowed significantly. For 2017, we estimate office rental growth to be about 3.8 per cent, and whilst we’re expecting growth next year, it will be marginal. For retail property, the growth story is not dissimilar, but rents have probably already levelled off.
In relation to yields, again we believe we’re nearing the top of the cycle for the various asset classes, with little room for further compression. We’d expect yields to remain steady for the next 12 to 18 months, and thereafter it’s difficult to call.
Where are the best investment opportunities at this stage?
For me, some of the pricing is beginning to look full. In such circumstances I’m in favour of only buying prime assets. I still believe there is value in suburban office property and, once the covenant is strong, there is still a good opportunity.
One thing to watch out for in 2018?
The Irish property market is very prone to external shocks, and for this reason I'd be mindful of global events. As ever, there are a few things that could keep us awake at night (Brexit, Donald Trump, North Korea, changes in US corporate taxation policy) but the two biggest concerns relate to availability of finance and the increased focus on tax harmonisation within the EU. The impacts of any changes will take time to filter through.
James Nugent is chairman of Lisney
