REAL ESTATE 2018 IRELAND - CBRE RESEARCH - CBRE Hotels
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CB RE RESEARCH 2018 IRELAND R E A L E S TAT E MARKET OUTLOOK
This year’s edition of Outlook is dedicated to the memory of our dear colleague Steven Brett, who tragically passed away during 2017 and is sadly missed.
SUMMARY
PAG E 0 6
Review of 2017 - Enda Luddy
2017 was a very active year for the Irish commercial real estate sector although returns and
transaction volumes returned to more normalised levels following three years of
out-performance. The occupier markets continued at pace with the office sector being the star
performer.
PAG E 0 8
Market Outlook 2018 - Marie Hunt
The Irish CRE market is now approaching late cycle in many respects. However, occupier activity
remains robust, development is controlled, the market is priced attractively compared to the rest
of Europe and there are still considerable opportunities for both occupiers and investors alike.
PAG E 1 2 PAGE 14
Funding Outlook 2018 - Offices
Patrick Phelan
Considerable expansion activity is expected to
There has been a notable improvement in the support another strong year of take-up in the
availability of bank funding for good Dublin office market in 2018 following a record
income-producing commercial and residential performance last year, which was boosted by a
real estate. In addition, several new sources of number of Brexit-related moves. There is
alternative funding have emerged, with non-Irish potential for further rental growth in many parts
banks, insurance companies and non-bank of the market including secondary and provincial
alternative funders all looking to grow their share properties in particular.
of the Irish lending market.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
3
SUMMARY
PAG E 1 9
Retail
With retailers increasingly focussing attention on a
relatively small pool of core locations and schemes, we
expect to see rental growth in the most sought-after
streets and schemes but rents remaining relatively flat
elsewhere during 2018 as the sector reacts to structural
changes.
PAG E 2 2 PAGE 26
Investment
Industrial & Logistics
We expect to see continued appetite for prime
The industrial & logistics sector will firmly move into
investment opportunities in the Irish market in 2018
the development phase of the cycle during 2018 with
with investors increasingly focused on good
new industrial and logistics facilities due to be
income-generating opportunities in the office,
delivered and a corresponding uplift in transactional
industrial & logistics and residential sectors in
activity anticipated.
particular. We expect to see some further new
entrants to the Irish investment market this year.
PAG E 3 0
Development
With a clear need to release more land for sale, now is the optimum time for landowners to bring sites to the market
and capitalise on the depth of demand that prevails for well-located zoned and serviced sites.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
4
SUMMARY
PAG E 3 3
Hotels
Unlike 2017, we expect to see some Dublin hotels
coming to the market during the next 12 months. If
this materialises, we could see up to €500 million of
Irish hotels changing hands in 2018, with a sizeable
proportion of these transactions occurring off-market.
PAG E 3 6 PAGE 39
Cork
Dublin Pubs
With room for some further yield compression and
After a year in which transactional activity was
above average rental growth, we expect to see strong
disappointingly low, we believe we will see an
appetite for prime opportunities that come to the
escalation in the number of Dublin pubs offered
market in Cork during 2018. We expect to see
for sale over the course of the next 12 months,
increased evidence of development activity across a
which is good news for the many specialist
range of sectors in the Cork market over the next 12
operators seeking to secure new premises in the
months.
capital.
PAG E 4 2
Contacts
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
5
REVIEW OF 2017
CONTINUED STRONG INVESTOR DEMAND
F O R I R I S H R E A L E S TAT E W I T H M A N Y N E W
ENTRANTS
2017 was a very positive year for economic growth across most of Europe with Ireland
outperforming other European countries for the fourth consecutive year. 2017 also
proved to be extremely busy in most sectors of the Irish commercial property market.
With deleveraging from NAMA and various banks virtually “We continued to witness strong investor
completed and few portfolio sales materialising, sourcing
product proved challenging in 2017. As a result, overall
demand for Irish real estate with many
transaction volumes in many sectors of the market, including new entrants emerging throughout the
investment and hotels, were down compared to the bumper last 12-month period”
performance of 2014-2016. Although sourcing product proved
challenging, we continued to witness strong investor demand
Looking at the volume of leasing and sales activity in the
for Irish real estate with many new entrants emerging
industrial and logistics sector during 2017 would lead one to
throughout the last 12-month period.
believe that demand was weaker than it was. However, take-up
figures mask the underlying scarcity of modern industrial &
The occupier markets were extremely busy in 2017 with the
logistics buildings along prime road corridors, which continued
Dublin office market being the exemplar performer, generating
to frustrate would-be occupiers. As a result, prime rental values
a record volume of leasing activity, fuelled by the signing of
in the industrial sector increased by more than 6% year-on-year
several large transactions including some notable pre-lettings
to reach a level that justifies new development. Indeed, there
during the year. The bulk of leasing activity in the office market
was a notable increase in planning applications for new
in the capital emanated from the expansion and relocation of
industrial & logistics buildings during the last 12-month period,
existing occupiers with Brexit providing a welcome additional
which will see much needed new development kick-starting in
layer of demand during the year. Indeed, the volume of leasing
this sector in 2018.
activity accounted for by UK occupiers more than doubled
year-on-year. Prime headline rents in the office sector in the
Consumer spending & retail sales activity remained strong
capital have now reached €700 per square metre (€65 per sq. ft.),
against a healthy economic backdrop during 2017. However,
having increased by 4% during 2017, although the bulk of
concerns about the ever-increasing move to online platforms
transactions are being concluded at somewhat lower levels.
and leakage to Northern Ireland as a result of the Sterling Euro
There was much discussion during the last year about the
exchange rate proved a lingering concern for some investors in
volume of new office stock being developed in the capital
the retail sector of the economy in 2017. As a result, many
considering the number of cranes visible on the horizon but the
investors and indeed occupiers focussed their attention on a
reality is that vast majority of office stock delivered to the
smaller number of the better performing high streets, shopping
market in 2017 was fully accounted for by year-end, which
centres and retail parks.
demonstrates the extent to which the supply line is controlled in
this cycle.
In the investment sector, transactional activity in 2017 was
approximately 40% less than the volume traded in 2016 (when
“There was a notable increase in
several large shopping centre sales skewed transaction
planning applications for new industrial volumes). While office and retail assets again made up the bulk
& logistics buildings during 2017” of activity, there was a notable increase in the volume of hotels
being sold as investments during 2017. There was also a pick-up
in industrial investment activity and a notable increase in
residential properties being sold for investment purposes with
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
6
REVIEW OF 2017
particularly strong demand emanating for Build-to-Rent (BTR) on property and pension fund values in Q4 and as a result the
opportunities fuelled by the severe shortage of housing supply total return from Irish real estate in 2017 will now come in at a
in core cities such as Dublin. We also noticed an increase in lower level than had been anticipated. Nonetheless, the rate of
appetite for opportunities in healthcare. return remains attractive relative to other jurisdictions, investor
appetite remains healthy and with occupier market activity
Although prime yields across Europe continued to harden remaining particularly strong and our economy on target to
throughout 2017 due to the weight of money chasing real estate outperform most of the rest of Europe for a fifth consecutive
investment opportunities, prime yields in Ireland remained year in 2018, the prospects for the commercial real estate sector
largely flat until late in the year when we saw yield hardening for the year-ahead remain positive.
occurring in some sectors. There is therefore considerable
arbitrage between prime yields in Dublin and other European “We were honoured to have been
capitals, which bodes well for continued investor interest in the
capital and indeed other cities such as Cork in 2018.
involved in some of the most prestigious
real estate transactions in Ireland during
“A notable increase in residential the last year”
properties being sold for investment
purposes with particularly strong CBRE continued to invest heavily in all service lines of our local
demand emanating for Build-to-Rent business throughout 2017 and we were honoured to have been
involved in some of the most prestigious real estate transactions
(BTR) opportunities”
in Ireland during the last year. We opened a new regional office
in Cork during 2017 and look forward to servicing our clients
The Irish commercial property market was on target to achieve a and introducing occupiers and investors alike to opportunities
total return of between 8% and 10% in 2017. However, this was in the Munster region over the course of 2018 and beyond.
affected by the surprise announcement in Budget 2018 that We look forward to working with you in 2018 and thank you
commercial stamp duty would increase from 2% to 6% with sincerely for your continued support.
immediate effect. This second unexpected change to taxation
policy in two years affected sentiment and impacted negatively Enda Luddy, Managing Director, CBRE Ireland
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
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M ARKET OUTLOOK
C O N T I N U E D F LO W S O F C A P I TA L I N T O
A LT E R N AT I V E S E C T O R S D U R I N G 2 0 1 8
While the direction of the Irish commercial property market is largely a function of
domestic economic and demographic drivers, it is also heavily influenced by global
trends. There is no doubt that both global and local economics, tax and politics will
have a significant bearing on the performance of the Irish real estate sector again in
2018.
In terms of economics, the international economic environment Attention will now move to future trade and migration
looks likely to be relatively benign in 2018 with a largely positive arrangements, both of which are hugely important for Ireland.
economic backdrop expected to continue to prevail in mainland The UK Parliament, EU Council of Ministers and European
Europe in 2018 and 2019, which is encouraging. Ireland is Parliament must ratify any deal agreed between the UK and the
particularly well placed with expected GDP growth rates well EU before March 2019. Therefore, negotiations must reach a
ahead of the Western European average in the period, which in conclusion before the end of this year to provide time for
turn bodes well for the Irish commercial real estate sector. At ratification.
this juncture, it seems like the next major headwind for Europe
will be an anticipated cyclical downturn in the US in late
2019/2020 with a resulting gradual unwinding of quantitative “European interest rates unlikely to
easing, which has been so supportive of the real estate increase dramatically during 2018”
investment market over recent years. Once monetary policy
becomes less accommodative, there is potential for yields to
soften. For the next 12 months however, we expect to see Focusing on the outlook for real estate specifically, Europe looks
continued disparity between Federal Reserve, Bank of England set for another year of robust investment activity in 2018
and ECB monetary policy with European interest rates unlikely supported by positive occupier and investment fundamentals.
to increase dramatically during 2018. This will support Ireland is certain to perform well considering the volume of
continued investment activity in Ireland over the course of the occupier activity evident in the market, the strength of the
next 12 months. underlying economy and its demographic profile.
Ireland’s market fundamentals remain compelling in a
“We are expecting to see increased focus European context. Although Brexit will for the most part be
negative for the Irish economy and indeed most sectors of the
on tax competition during 2018”
commercial real estate sector, the Dublin office market is
expected to continue to benefit from Brexit and shadow-Brexit
In terms of taxation, it remains to be seen what impact recent location decisions throughout 2018. We are confident of
US tax changes will have for the Irish market. In any event, we continued strong take-up activity in this sector over the next 12
are expecting to see increased focus on tax competition during months, with the bulk of activity expected to emanate from the
2018, with developments in the US and Europe being of expansion of existing occupiers. A key trend will be the increase
particular relevance to Ireland, which has long benefitted from in demand for co-working and flexible office accommodation in
its relatively competitive corporate tax rate of 12.5%. Relying the Irish market. We also expect to see a much greater focus on
solely on this element of Ireland’s offer to sustain foreign direct placemaking in an effort to rejuvenate certain parts of cities and
investment and job creation is clearly not sustainable long- attract occupiers to these locations. Secondary and provincial
term. office buildings look set to see the best rental growth
performance during 2018 with prime rents in the Cork market
Global politics aside, 2018 will obviously be crunch time for expected to increase by as much as 10% during the next 12
Brexit negotiations. This will have particular ramifications for months.
the Irish economy and in turn its commercial real estate sector.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
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M ARKET OUTLOOK
A scarcity of premises in the most highly sought-after locations Over the next 12 months, we expect to see continued appetite
in Ireland is likely to continue to frustrate retailers in 2018 from existing and new investors chasing product and yield in an
although there are now signs of new retail supply coming on effort to deploy capital in the European real estate sector.
stream, both in terms of new development commencing and Ireland is well placed to benefit from this and looks likely to
new planning applications being lodged, which will help attract some further new entrants. With regard to Asian capital,
alleviate this pressure in due course. As some investors and which is expected to be particularly active in Europe in 2018, it
occupiers grapple with fundamental structural issues facing the remains to be seen how engaged it will be in the Irish market.
retail sector, we are likely to see greater appetite for the better Bizarrely, it is now easier to raise capital than to deploy it, with
performing high streets, shopping centres and retail park the biggest challenge continuing to be the ability to source core
schemes, from both occupiers and investors alike. New entrants deals at this mature stage of the cycle.
are likely to be particularly attracted to any new accommodation
that comes available. “Secondary and provincial office
buildings look set to see the best rental
“The Dublin office market is expected to
growth performance during 2018”
continue to benefit from Brexit and
shadow-Brexit location decisions While yields for prime investment product in Europe are not
throughout 2018” expected to compress significantly further in 2018, Ireland
could prove the exception to this trend considering the fact that
yields remain higher than previous peak levels unlike most
In the industrial and logistics sector, we anticipate a substantial other European markets. This should bolster international
increase in speculative development in Dublin from this point appetite for Irish real estate opportunities over the next
forward, now that prime headline rents have reached a level that 12-month period, with particular focus on core
renders new development economically viable. We will also see income-producing investments in both Dublin and Cork. We
some new speculative development occurring in the Cork expect to see greater focus on tenant risk, the security of rental
market this year. We expect to see headline rental values in income and potential for voids as investors look to underwrite
Dublin increasing by up to 11% during 2018. transactions at this point in the cycle, where the greatest focus
is on income.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
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M ARKET OUTLOOK
In addition to demand for office and industrial & logistics requirements in various sectors of the market. However,
opportunities, we expect to see continued flows of capital into changes to the Capital Gains Tax waiver scheme announced in
alternative sectors over the course of the next 12 months with last October’s Budget may release some assets to the market a
particularly strong demand for residential investment little earlier than originally anticipated, which will help the
opportunities in Dublin, considering the stable long-term situation. This will be particularly welcome in the development
income streams this sector can deliver. Alternative sectors will land sector where there is a severe shortage of sites to satisfy
become increasingly mainstream. end-user demand. The implementation of a Site Value Tax from
2019 onwards may also release some more land to the market in
2018. The shortage of both private and public-sector housing in
“We expect to see continued flows of key cities such as Dublin is likely to continue to dominate
capital into alternative sectors over the headlines throughout 2018. Improving supply and facilitating
course of the next 12 months with more efficient use of existing housing stock will therefore
continue to be a priority focus for Government for the year
particularly strong demand for residential ahead.
investment opportunities in Dublin”
“Improving supply and facilitating more
While there have been improvements to the planning process efficient use of existing housing stock will
over the last 12 months and welcome announcements from the
therefore continue to be a priority focus
Minister for Housing in relation to the potential relaxation of
density requirements and design standards, we now need to see for Government”
these proposals being enacted so that developers can proceed
with delivering much-needed residential product. We envisage
an improvement in the volume of delivery of residential The need for improved transparency and accurate market
accommodation in the Irish market over the next 12 months, statistics to better guide policy-making and decision-making
however, this is coming from an extremely low base, so we will will continue to be topical and we anticipate a strong focus by
unfortunately continue to see huge supply-demand imbalances the Property Services Regulatory Authority (PSRA) on enforcing
prevailing in this sector for some time yet. use of the Commercial Lease Database over the course of the
next 12 months.
The tourism sector looks set to perform well again in 2018
which bodes well for the hotel market. Unlike last year, we In summary, while the Irish CRE market is now approaching
expect to see some Dublin hotels being offered for sale during late cycle in many respects, occupier activity remains robust,
2018, which in turn will boost overall transaction volumes in development is controlled, the market is priced attractively
this sector. If this materialises, we could see up to €500 million compared to the rest of Europe and there are still considerable
of hotel trades in the Irish market in 2018. As is the case opportunities for both occupiers and investors alike. CBRE look
elsewhere in Europe, we are increasingly seeing investment forward to working with you in what promises to be another
appetite for hotel properties and we therefore expect to see an active year for the Irish commercial real estate sector.
increasing proportion of Irish hotels being traded as
investments over the next couple of years. Marie Hunt, Executive Director & Head of Research, CBRE
Ireland
The biggest challenge in the Irish commercial real estate sector
in 2018 is likely to be a continued shortage of product to satisfy
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
10© 2017 CBRE, Inc. GLOBAL REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
11FUNDING OUTLOOK
INCREASING COMPETITION BETWEEN
BANK AND NON-BANK LENDERS IN THE
D E V E LO P M E N T S E C T O R
During 2017, we expected two main market trends, (i) a significant wave of refinances
from the loan books purchased by funds and other entities over the last number of years
and (ii) the re-emergence of commercial and residential development finance, possibly
on a speculative basis. To an extent, fuelled by a competitive funding environment, both
occurred.
There has been a notable improvement in the availability of transactions have already made a comeback in the commercial
bank funding for good income producing commercial and sector. Investors seeking private rented schemes are now
residential real estate over the past year. Both local and prepared to forward fund well-located developments with
domestic banks have been active in the market. However, due credible counterparties.
diligence requirements have impacted significantly the length
of time required to complete the transactions. ‘Loan-to-Value’ The growing participation of non-bank lenders in the
ratios continue their recovery. However, the regulatory residential development market is very welcome and in many
environment continues to make it costly, and therefore less cases, they can fill the gap between the funding available from
attractive, for traditional banks to fund short term leases or on a traditional banks and the equity available from the promoters.
long-term basis. In response, several new sources of alternative Over the last 12 months, the number of lenders in this space has
funding have emerged, with non-Irish banks, insurance increased and pricing has moderated. Whilst their preference is
companies and alternative funders, growing their share of the for schemes with “ready-to-go” planning, they will lend to
Irish market. The lending parameters, scope, return schemes where planning is being advanced, provided they can
requirements and risk appetite of these lenders vary get comfortable with the planning proposals.
considerably and some real estate investors are finding it
increasingly difficult to identify the most appropriate lending The preferred transaction for alternative lenders is as follows:
partner and debt structure for their specific investment.
Whilst liquidity for smaller, secondary properties and
non-income producing assets such as development land
LENDING UPWARDS OF €10
without planning, has remained difficult and expensive, we have
MILLION
seen an increase in risk appetite of certain lenders.
“There has been a notable improvement
in the availability of bank funding for PROVIDING STRETCH SENIOR
good income-producing commercial and FINANCING OF UP TO 90% OF
THE OVERALL PROJECT COST,
residential real estate over the past year” 65% OF EX VAT SALES PRICES.
For non-speculative development, there has been a significant
improvement in the availability of funding from traditional NORMALLY PROVIDE LOAN
bank and alternative lenders. Indeed, the development sector is TERMS OF UP TO 36 MONTHS,
no longer reliant on one form of capital; with a myriad of BUT CAN CONSIDER LONGER
(UP TO 60 MONTHS).
different funders actively seeking viable projects both in the
residential and commercial sectors. Forward funding
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
12FUNDING OUTLOOK
The pricing structure typically comprises an arrangement fee, evolution of a more corporate type debt funding market for this
upfront or rolled up, a coupon and an exit fee depending on the sector in the medium term, particularly if the developer can
leverage levels being offered and the individual merits of each demonstrate an ability to commence construction on a pipeline
opportunity. of sites.
“For non-speculative development, there “CBRE Capital Advisors have strong
has been a significant improvement in connectivity into various funding sources,
the availability of funding from traditional from banks to alternative lenders”
bank and alternative lenders”
CBRE Capital Advisors have strong connectivity into various
We have provided assistance to several developers over the last funding sources, from banks to alternative lenders, which
year on their applications. The key to accessing funding from enables us to source debt and equity on a wide range of
any lender will be a proposal that will stand up to the due proposals. Our Irish team provide the full range of corporate,
diligence process, focusing on previous experience, structured finance and capital raising services required in
management team, building capacity, key contractor response to the increasing difficulty, complexity, and
relationships, execution ability and access to pipeline sites. uncertainty sponsors are faced with when trying to access
There is intense competition between the bank and non-bank capital. Over the past year, we have successfully raised over €500
lenders to provide site acquisition, construction, infrastructure million for clients including Ballymore, Kennedy Wilson,
and the capitalisation of interest, to strong promoters in the Harcourt Developments and John Flanagan Developments. Our
main urban centres of greater Dublin, Cork and Galway. pipeline for 2018 looks very promising, which is a clear
Traditional banks are particularly targeting the more indication of the strength of the funding market.
established housebuilders with a strong pipeline of schemes of
either houses or multi-family accommodation. They want to Patrick Phelan, Director, CBRE Capital Advisors
lend on a “site-by-site” basis, however we expect to see the
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
13OFFICE OUTLOOK
SCARCITY OF PRIME OFFICE STOCK
WILL CONTINUE TO PREVAIL
2017 proved to be a record year for the Dublin office market with approximately *240,000m2 of new office stock to be delivered in
more than 330,000 square metres of take-up recorded. While the the capital in 2018 of which a sizeable proportion has been
bulk of activity comprised small-to medium sized lettings, pre-let.
take-up was boosted in no small part by the signing of several
large lettings in schemes that were under construction and in Prime headline office rents in the capital rose further during the
most cases nearing completion - a number of which were either last 12 months although the pace of rental inflation eased
directly or indirectly Brexit-related. The volume of lettings to UK considerably compared to 2015 and 2016. Headline rents
tenants doubled year-on-year, demonstrating the extent to reached €700 per square metre by the end of last year and we
which Brexit added a welcome layer of additional demand to the expect that headline rents will remain relatively stable at this
Dublin market during 2017. The sale of a building to JP Morgan level throughout 2018. There may, however, be some exceptions
at Capital Dock in Dublin Docklands was the most significant where small suites or superior buildings achieve premium
Brexit-related transaction recorded. Meanwhile, the letting of rental values. Office tenants who plan in advance will be able to
20,074m2 in the other two office blocks in this scheme to Indeed lock into better deals that those who procrastinate. The best
towards year-end was particularly noteworthy, being one of the prospects for rental growth in the office sector in 2018 will be in
largest office lettings ever signed in Dublin. buildings in secondary and provincial locations.
“The vast majority of new office supply Despite the volume of construction that is underway in Dublin
delivered in the calendar year was and the amount of grey space coming available as occupiers
move to new premises, we expect that a scarcity of prime office
accounted for by year-end, which accommodation will continue to prevail in the capital during
demonstrates the extent to which the 2018. This in turn will see some occupiers committing to
schemes that are still in the process of being constructed,
development pipeline is controlled in this
particularly those that are nearing completion. However, we also
cycle” expect to see an increase in true pre-lettings this year as
occupiers commit to schemes that have not yet commenced
Several office occupiers who leased more accommodation than construction despite having obtained the relevant planning
they required in recent years with a view to sub-letting part in permissions. Securing pre-lettings will unlock development
due course ultimately expanded into the excess accommodation funding for many of these projects, which continues to prove
adding to supply pressures over the last 12 months. The largest elusive for speculative development.
office leasing transactions completed in Dublin during 2017
primarily emanated from expansion activity resulting in We expect occupiers in the technology and financial services
significant net absorption. The quality of the tenant profile was sectors to dominate again in 2018 with an increasing proportion
particularly encouraging. of Dublin leasing activity likely to occur in the suburbs of the
city as occupiers move some functions of their business to more
Considering the strength of underlying demand, office cost-effective locations. This in turn will encourage some
development continued at pace throughout 2017. additional office development in the suburbs in 2018. Occupiers
Encouragingly, the vast majority of new office supply delivered are comfortable moving some elements of their operations to
in the calendar year was accounted for by year-end, which locations outside of the traditional CBD as long as they retain
demonstrates the extent to which the development pipeline is the ability to attract talent.
controlled in this cycle. The delivery dates for several large
schemes have now been pushed out, primarily due to delays in As the year progresses, we expect a growing number of Brexit-
securing development funding. Nevertheless, we expect related mandates to solidify, with occupiers who heretofore have
*Figure updated as @ 8th January 2018.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
14OFFICE OUTLOOK
been exploring options, now committing to specific buildings. collaboration between landlords and tenants. We expect to see
In addition to well-publicised moves that are directly increased demand for flexible office accommodation in 2018
attributable to Brexit, we expect to see a large shadow-Brexit having seen occupiers such as WeWork signing their first leases
effect with companies who are concerned about future permit in the Dublin market during the last 12 months. Companies
and visa requirements in the UK, choosing to increase their need accommodation that can adapt, shrink or expand to meet
workforce in other European capitals such as Dublin instead. the needs of their organisation and landlords are beginning to
The scarcity of residential rental accommodation to recognise the importance of a flexible offering to complement
accommodate the growth in office-based employment in Dublin traditional leased office accommodation. Occupiers
continues to be a concern for many occupiers although we increasingly require touchdown space when they enter a new
expect pressure to be alleviated somewhat in 2018 as new market until they have visibility on their medium and long-term
residential supply starts to come on stream in various locations space requirements, a point that is hugely relevant in a Dublin
in and around the capital. In this regard, the delivery of new context considering the extent of reliance the city’s office
Build-to-Rent schemes close to key transport nodes is hugely market has on technology sector tenants in particular.
important.
While some occupiers will have a preference to sign short leases
The office market is evolving and maturing, responding to due to new lease accounting rules that require leases to be fully
occupier requirements for quality accommodation, more accounted for on balance sheet, the reality is that the balance of
efficient use of office space and enhanced flexibility. Tenants are power in the Dublin office market will remain firmly with
increasingly mindful of flexible working trends and the landlords for the foreseeable future. We therefore expect to see
potential of artificial intelligence when they are reviewing future long leases and a relatively low level of incentives and
accommodation needs. This will necessitate even greater inducements continuing to prevail.
Figure 1: Dublin Office Take-Up vs. Vacancy 2007 - 2017
350 Gross Take-Up Vacancy Rate
300 25.00%
250
20.00%
200
15.00%
Sq M '000's
Vacancy Rate
150
10.00%
100
5.00%
50
0 0.00%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: CBRE Research
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
15OFFICE OUTLOOK
While Dublin is expected to continue to attract the lion’s share We therefore expect another strong year of take-up activity in
of occupier activity in 2018, we anticipate an escalation in office the Dublin office market in 2018 although it remains to be seen
development in other cities during the next 12 months with if last year’s record performance can be replicated. In any event,
planning permission in place for a number of significant office the continued strength of this sector of the occupier market will
developments in Cork, Limerick and Galway. continue to copperfasten investor demand for office properties
in the Irish market in 2018.
The demand pipeline as we enter 2018 is particularly healthy.
In addition to accommodating continued foreign direct
investment, there are several sizeable expansion requirements
to be fulfilled over the course of the next 12 months.
Sale of One Capital Dock, Dublin 2 to JP Morgan on behalf of Kennedy Wilson
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
16Pre-letting of 3,437m2 at One Molesworth,
Molesworth Street, Dublin 2 to Barclays on
behalf of Green REIT plc
Letting of 8,361m2 to Fleetmatics at The Atrium, Sandyford, Letting of 5,146 m2 at Iveagh Court, Dublin 2 to WeWork - their first
Dublin 18 on behalf of Blackstone letting in Dublin
Joint letting agents on Dublin Landings office scheme at Dublin
Docklands on behalf of Ballymore Oxley, with two significant lettings to
the NTMA completed during 2017
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
17© 2017 CBRE, Inc. GLOBAL REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
18RETAIL OUTLOOK
CONTINUED STRONG DEMAND FOR PRIME
H I G H S T R E E T A N D R E TA I L S C H E M E S
Although undertones of negativity appeared in commentary pressure. In line with trends elsewhere in Europe, we are
about the retail sector and property market in 2017, the reality continuing to see existing shopping centres expanding their
is that the sector performed well last year with consumer footprint. Most are adding accommodation such as a tailored
sentiment, retail sales and footfall all broadly positive. We saw food & beverage offer and a more diverse range of leisure as well
continued strong demand for stores on the best retail high as focussing on placemaking to increase dwell times and boost
streets, shopping centres and retail parks throughout the footfall. All the M50 shopping centres on the outskirts of Dublin
country. Transactional activity in 2017 largely emanated from a (including The Square, which traded last year) have, or are in the
relatively small pool of retailers. There were however several process of obtaining, planning permission to facilitate
notable transactions negotiated with new entrants to the Irish extensions. A number of suburban schemes including Frascati
market such as Hotel Chocolat, Victoria’s Secret, The Range, Shopping Centre, Dun Laoghaire Shopping Centre, Blackrock
Homesense, Smiggle, Dr Martens, Urban Decay and The Ivy. Shopping Centre and Stillorgan Shopping Centre in south
Dublin are upgrading their offerings by carrying out extension
and refurbishment works. Several planning applications for new
“Transactional activity in 2017 largely retail schemes are due to be lodged in 2018 including a scheme
emanated from a relatively small pool of in Carrickmines in south Dublin while planning for a scheme in
Cherrywood was lodged last year. In addition, we may see some
retailers”
movement on the long-awaited Clery’s redevelopment on
O’Connell Street in the capital later this year. Outside of Dublin,
The leisure, food & beverage and beauty & cosmetics sectors there is limited new retail supply planned.
were particularly active and there was a notable improvement in
demand for units in retail parks from homeware and furniture Retailers continue to focus on establishing flagship stores in key
retailers, which is perhaps not surprising considering the schemes and high streets. Dublin is now firmly on the radar of
volume of housebuilding that is now underway and likely to many international retailers looking to grow their portfolio in
escalate further in 2018. Europe while Irish retailers are also increasingly active.
UK retailers were less active than normal in 2017 for a number Competitive tension for stores on some of the better performing
of reasons including Brexit uncertainty although several UK high streets, shopping centres and retail parks, where vacancy is
retailers made some strategic expansion and relocation negligible, will see further retail rental growth being achieved.
decisions in the Irish market during the year. There was much With retailers’ increasingly focussing attention on a relatively
discussion about leakage to Northern Ireland due to the Sterling small pool of core locations and schemes, we expect to see an
Euro exchange rate and the ever-increasing move towards increase in rental growth in the most sought-after streets and
online retailing. However, the most notable underlying schemes but remaining relatively flat elsewhere during 2018. It
frustration in the retail sector in Ireland during 2017 was the will be increasingly necessary to evaluate secondary and
scarcity of stores in prime locations. One sign of this provincial properties on their own merits as opposed to
competitive tension was a return of ‘key money’ being paid by collectively from this point forward. The need for astute asset
restauranteurs for some prime pitches in Dublin city centre. management will really come to the fore this year with rental
growth likely to prove elusive in schemes that are not being
A scarcity of premises in the most highly sought-after locations managed optimally. We expect to see break options in leases
is likely to continue to frustrate retailers in 2018. However, there continuing to move out over the course of the next 12 months
are now signs of new retail supply coming on stream, both in with landlords seeking longer term certain leases and reducing
terms of new development commencing and new planning incentives for prime units.
applications being lodged, which will help alleviate this
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
19RE TAIL OUTLOOK
Several Irish retailers have focussed huge attention on important as the role of the traditional store changes leading to
improving their multichannel strategies over recent years and further blurring of the lines between retail and industrial
this is going to become increasingly important. Those that property over the next few years.
haven’t embraced omnichannel will ultimately struggle. The
physical store and its relationship to the consumer will continue “Dublin is now firmly on the radar of
to be hugely topical in 2018 with physical stores becoming many international retailers looking to
increasingly focused on consumer experience and an increasing
proportion of consumers opting to shop online in addition to
grow their portfolio in Europe while Irish
shopping in-store. The logistics sector will become increasingly retailers are also increasingly active”
Leasing agents on Dundrum Town Centre, Dublin on behalf of
Hammerson plc having introduced a number of new brands
including Hotel Chocolat and Smiggle during 2017
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
20Acquired a number of large retail warehousing
units for Homestore & More in both ROI and
Scotland and several stores for EZ Living and
Maxi Zoo around Ireland during 2017
Advised Lidl on more than 20 retail transactions during 2017
including site and store acquisitions, new lettings and disposals
throughout Ireland
Retail agents for Green REIT plc for whom we successfully completed Leasing agents on Frascati Shopping Centre extension, Blackrock,
transactions with 2 new entrants to the Irish market in 2017, namely Co. Dublin, which is due for completion in early 2018
The Ivy Restaurant Group and Homesense
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
21I N D U S TRI A L & LOGISTICS OUTLOOK
I N D U S T R I A L & LO G I S T I C S S E C T O R L I K E LY
TO OUTPERFORM OTHER SECTORS
IN 2018
Occupier demand for logistics property across Europe continues are likely to be redeveloped for higher value alternative uses
to grow strongly. This is clearly evident in the Irish market with such as Build-to-Rent over the next few years, which will reduce
strong demand for modern industrial & logistics properties and supply even further.
development sites in core locations, particularly around
Dublin’s M50 and Little Island in Cork. Last year was We expect new development to be largely concentrated in the
characterised by severe shortages of modern industrial and northern section of the M50 motorway around Dublin Airport
logistics stock to satisfy demand, which in turn fuelled rental and along the N7 motorway, where demand is particularly
growth and impacted negatively on take-up volumes. We expect strong. Outside of Dublin and Cork, speculative development is
that this will alleviate somewhat in 2018, as new supply finally unlikely to materialise to any great degree in any other Irish
starts to materialise. This sector will firmly move into the cities during 2018.
development phase of the cycle during 2018 with new industrial
and logistics facilities due to be delivered and a corresponding From a design perspective, we envisage increased eaves heights
uplift in transactional activity anticipated. being incorporated into new logistics buildings with 12 metre
minimum clear internal heights becoming increasingly
“Strong demand for modern industrial & standard specification for units larger than 3,000 square metres.
We also expect substantial capital expenditure focused on
logistics properties and development sites
increasing mechanisation and automation within facilities.
in core locations, particularly around
Dublin’s M50 and Little Island in Cork”
“Prime headline industrial rents in Dublin
are expected to rise by approximately
Until there is a meaningful improvement in new supply, prime
rents in the industrial sector are expected to continue to rise. 11% in 2018, reaching €110 per square
Having increased by 6% during 2017, prime headline industrial metre or €10.25 per sq. ft. by year end”
rents in Dublin are expected to rise by approximately 11% in
2018, reaching €110 per square metre or €10.25 per sq. ft. by
year end. As a result, the industrial and logistics sector is likely We believe that an increasing proportion of industrial & logistics
to outperform many other sectors in 2018 and will therefore occupiers will have a preference to own premises as opposed to
remain particularly attractive to investors, although sourcing leasing them when new lease accounting rules come into effect
investment grade logistics assets is expected to remain in 2019 on the basis that entire leases will have to be accounted
challenging. for on balance sheet. Despite pressure from occupiers for
shorter leases, landlords and indeed funders will continue to
We anticipate a substantial increase in speculative development push for longer leases and we expect most leases signed in 2018
in Dublin from this point forward, now that prime headline to extend to durations of at least 10 years as opposed to 5 years,
rents have reached a level that renders new development which has been commonplace in recent years. Incentives and
economically viable. We also expect an increase in inducements will also become less significant in prime
owner-occupiers developing their own facilities over the course locations where availability is limited.
of the next 12 months. However, we remain concerned about the
scarcity of fully zoned and serviced land to facilitate An increasing proportion of demand in the Irish market is
development in prime locations around Dublin’s main arterial emanating from the supply chain sector with a particular focus
routes, where many of these occupiers are primarily focussed. on last mile delivery, as online sales continue to grow
Several older industrial locations close to Dublin’s city centre year-on-year and retailers develop their omnichannel and
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
22© 2017 CBRE, Inc. GLOBAL REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
23I N D U S TRI A L & LOGISTICS OUTLOOK
distribution platforms. In addition, Brexit uncertainty is leading Whilst we expect Cork to emerge as a new data centre market in
some occupiers to consider establishing dedicated distribution 2018, Dublin is firmly viewed as ‘the hyperscale capital of
facilities in Ireland as opposed to shipping goods through ports Europe’ and we forecast continued growth within the wholesale
or bringing them across the border from Northern Ireland. and retail co-location market over the next 12 months.
Approximately one third of industrial and logistics take-up in
the UK now comprises companies involved in online sales or
“Dublin is firmly viewed as ‘the
e-commerce fulfilment. While Ireland has a long way to go in
this respect, online sales activity continues to rise and we expect hyperscale capital of Europe’”
to see this manifesting in heightened demand for logistics and
distribution facilities over the next number of years. In summary, 2018 looks set to be very active for this sector of the
Irish property market with the next phase of new development
We also anticipate continued appetite for suitably serviced data kicking off in earnest.
centre sites to accommodate hyperscale occupiers around the
country as the fibre network continues to improve and expand
in terms of coverage.
Acquisition of 2,705m2 on behalf of Dnata at Dublin Airport Logistics Park, Co. Dublin
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
24Lease acquisition of 4,640m2 on behalf of international luxury
goods company at Horizon Logistics Park, Co. Dublin
Disposal of 8,559m2 former Electrolux facility at Naas Road, Dublin 12 Advisory role on Epark development, Little Island, Cork on
behalf of JCD
Disposal of 10 acres of industrial zoned land at Kingswood
Business Park, Dublin 24 on behalf of Cerberus
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
25I N V E STMENT OUTLOOK
D E P LOY I N G C A P I TA L W I L L C O N T I N U E
TO BE THE BIGGEST CHALLENGE
FOR INVESTORS
Although the investment sector of the Irish commercial real Although prime yields in some sectors of the Irish market such
estate market was busy throughout last year, the overall volume as offices and multifamily residential hardened by as much as
of transactional activity recorded in 2017 was considerably 50 basis points in the latter half of 2017, yields in the Irish
lower than in the 2014-2016 period, which was characterised by market remain attractively priced compared to other locations,
large scale deleveraging and loan sale activity. In the absence of which is significant in terms of attracting international capital.
any large portfolio sales last year, the volume of investment Yields in Irish cities other than Dublin are priced even more
spend was approximately 40% lower than that recorded in the attractively and we expect to see investor appetite for prime
previous year with an increasing proportion of this spend investment opportunities in cities such as Cork, Limerick and
occurring outside of Dublin. The likelihood is that Galway over the next 12 months.
transactional activity in 2018 will be broadly similar to last
year’s outturn, as the market returns to a more normalised level With little room for significant yield compression from this
of trading. point, we expect investors to become increasingly focussed on
the income-generation potential of investments. Investors are
“The likelihood is that transactional likely to focus most attention on investment opportunities in
activity in 2018 will be broadly similar to the office and industrial & logistics sectors in 2018 considering
the underlying strength of the occupational market and
last year’s outturn, as the market returns
additional demand that is materialising as a result of Brexit.
to a more normalised level of trading”
“Yields in the Irish market remain
Total returns from Irish commercial real estate in 2017 were
attractively priced compared to other
negatively impacted by an unexpected trebling of the rate of
stamp duty on ‘non-residential’ transactions implemented in locations, which is significant in terms of
last Autumn’s Budget. While this did significant reputational attracting international capital”
damage, and impacted negatively on property valuations and
pension fund values, thankfully it doesn’t appear to have
dampened investor appetite for Irish commercial real estate to There remains scope for rental growth in the office sector,
any great degree. particularly in secondary and provincial locations. We are also
confident that the limited supply of stock will drive further
As has been the case throughout Europe, low interest rates and rental growth in the industrial & logistics sector in 2018. As new
a lack of investment opportunities in other asset classes has led office and industrial buildings are leased, this in turn will create
to a significant weight of capital chasing real estate investment much needed investment product, albeit many of these
in the Irish market in recent years. However, the scarcity of core transactions are likely to occur off-market and possibly in
product proved challenging for the many investors seeking to advance of construction completing.
deploy capital in Ireland during 2017. Encouraged by the strong
economic backdrop, the strength of underlying occupier activity We also expect to continue to see institutional capital targeting
and the potential for both rental growth and yield compression, opportunities to partner with local developers to provide
the pool of international investors focussing attention on scalable investment in the emerging residential investment
investment opportunities in the Irish market deepened sector during 2018. The Build-to-Rent model offers defensive
considerably over the last 12 months. Some of this increase in income characteristics, which is very appealing to investors in
appetite from core and core plus investors who are largely the current climate. We therefore expect to see continued flows
focussed on wealth preservation was fuelled by comparative of capital into the alternative sector over the course of the next
pricing in other European capitals where yields in many cases 12 months with particularly strong demand for residential
hit all-time lows during 2017. investment opportunities in Dublin.
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
26I N VE STMENT OUTLOOK
Investment sales are likely to predominately emanate from
Other than prime high street and the better performing investors seeking to capitalise on the yield compression
shopping centres and retail parks, which will continue to be witnessed over the last 12 months while we also expect to see
highly sought after from occupiers and investors alike, we some long-term owners rebalancing their portfolios by
expect to see a thinner pool of investors focussing on secondary disposing of older assets in order to redeploy capital. Because
and provincial retail investment opportunities over the next 12 of changes implemented in last year’s Budget, real estate assets
months as structural issues in the retail market generally start bought between 2011 and 2014 can now be sold after a four-year
to concern some investors. Rental growth is likely to prove hold period without incurring Capital Gains Tax (as opposed to
elusive in some retail schemes and locations unless they are what was originally a seven-year hold period). This may result in
being actively asset managed. some additional assets being released for sale in 2018,
particularly those held by private investors. While there is likely
“Yields in Irish cities other than Dublin to be further loan sale activity this year, the real estate assets
within these portfolios are expected to be relatively granular
are priced even more attractively and we compared to the loan portfolios traded in recent years.
expect to see investor appetite for prime The profile of investors is likely to be broadly similar to those
that dominated buying activity in 2017. European institutional
investment opportunities in cities such as
investors are likely to be particularly acquisitive and we are
Cork, Limerick and Galway over the next likely to see some new entrants investing in Ireland this year.
12 months”
Figure 2: Irish Investment Spend 2007 - 2017
5000
4500
4000
3500
3000
Million
2500
2000
1500
1000
500
0
2007
2008
2009
2010
2012
2013
2014
2015
2016
2017
2011
Source: CBRE Research
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
27I N V E STMENT OUTLOOK
Meanwhile, we expect to see more capital from Asia focussing years. However, interest rates in Europe are expected to remain
attention on the Irish market in 2018 with Korean investors stable in 2018, which bodes well for continued investment in the
likely to be targeting any core office investment opportunities real estate sector over the course of the next 12 months. It would
that emerge. appear that deploying capital will continue to be the biggest
challenge for investors in the Irish market for the foreseeable
“The Build-to-Rent model offers defensive future.
income characteristics, which is very
“Interest rates in Europe are expected to
appealing to investors in the current
remain stable in 2018, which bodes well
climate”
for continued investment in the real
We are clearly approaching late cycle and will eventually see a
estate sector over the course of the next
gradual unwinding of quantitative easing, which has been so 12 months”
supportive of the real estate investment market over recent
Acquisition of 13-18 City Quay office investment on behalf of Irish Life for in excess €125 million from Targeted Investment Opportunities
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
28Sale of AIB Grafton Street for
approx. €50 million on behalf of
GLL
Sale of Merchant’s Quay Shopping Centre, Cork to Clarendon Acquisition of Honey Park, a Build to Rent (BTR) investment
for €13.7 million opportunity at Dun Laoghaire, Co. Dublin on behalf of Patrizia
for €132 million
Forward-funding of No. 1 Dublin Landings office investment
opportunity for more than €150 million on behalf of Ballymore
and Oxley plc to an international investor
© 2018 CBRE U.C. IRELAND REAL ESTATE MARKET OUTLOOK 2018 CBRE RESEARCH
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