M50 Schemes, Logistics And The Regions Could Be Star Performers In 2019
The Irish property sector had another year of stable growth in 2018 and — according to the industry — 2019 should bring more of the same.
It’s not all good news, however. JLL Director of Research Hannah Dwyer warned of more risks on the horizon than there were this time last year. “Therefore, there is some element of caution in the market,” she said.
So, with our cautious hats on, here are some of the trends to look out for in 2019.
Business as usual for deals and investor interest
Dwyer expects investment volumes in 2019 to be similar to this year’s €3B, with a steady stream of supply coming from loan sale workouts, some level of recycling of assets, and investors bringing stock onto the market to avail of the extended capital gains tax exemption period.
“We are currently aware of over €1B of assets that are either on the market, or due to come to the market in the first half of the year, which would provide a solid start for investments to 2019,” she said.
The strong investor interest in Dublin seen in 2018 is also expected to continue. “Healthy demand persists in Ireland across all sectors for core assets and if the supply is there it will be met,” BNP Paribas Real Estate Managing Director and Head of Investment Kenneth Rouse said.
More Asian capital looking at Dublin
Asian money coming into Dublin has been one of the big stories of 2018 and this should also be the case in 2019.
“We’ve seen a few deals so far but we’re going to see a far bigger volume next year,” Savills Director Mark Reynolds said. “They’re here in numbers, they’re out looking actively for stock and it’s real. We’ve talked about it in the last two or three years but it’s now happening."
While there has been notable Korean interest in recent months, Reynolds said investors from Hong Kong and mainland China are also very keen to get into Dublin.
Colliers Surveyor Stephen Conway said Ireland is benefiting from the U.K. being off the radar of these investors at present. “There’s a serious currency risk there," he said. "For the short term, it’s really put a pause on investment in the U.K. and we are benefiting from that.
“We’re seeing the requirements coming through now and I think that’s going to lead to transactions next year,” he said.
Still lots of demand for office space
2018 is expected to be a record year for office take-up and strong levels of demand are set to continue next year. Cushman & Wakefield is tracking around 3M SF of potential office enquiries in Dublin at present and expects to see rental growth of 4% to 5% in 2019.
Dwyer said demand next year will continue to be dominated by tech, media and telecoms companies in expansion mode. “Large deals will continue, mirroring this year, particularly in tech, with further deals from companies like Facebook, Google and LinkedIn, who dominated take-up in 2018,” she said.
Regional markets to take off
While much of the demand for office space and investor interest has focused on Dublin to date, Cushman & Wakefield Managing Director Aidan Gavin is expecting regional markets to do well in the next couple of years, partly as a result of Dublin being unable to cater for the 3M SF currently required.
“We’re not going to be able to deliver that space fast enough so we are going to see some companies decide to put their back-office outside Dublin or even decentralise some of their functions. The fact that you can get best in class offices in Cork, Galway or Limerick for half of the rent of CBD Dublin is going to appeal to a lot of occupiers looking at Ireland.”
On the investment side, HWBC Director Iain Sayer said investors seeking more yield will move up the risk curve into refurbishment and development activity, and to locations outside Dublin. “Speculative schemes are now on site in Cork, Galway and Limerick,” he said.
Investors will widen their focus
And office investors will also consider opportunities in some of Dublin's less prime areas. “Given that nearly all available investment opportunities in the docklands have been taken up by long-term investors or owner occupiers, I think focus will turn to alternative locations,” Sayer said.
“Besides Leopardstown, the Dublin 7 and 8 areas show the most promise, with large scale development already underway attracted by the high quality public transport and civic infrastructure.”
M50 schemes will come into focus
The big story in retail over the next year or two will be around new stock becoming available in the M50 schemes, Gavin said.
“When you add everything from Cherrywood to the Square in Tallaght, Carrickmines, Liffey Valley Phase 2 and possible extensions at Blanchardstown and Pavilions, 2M SF of additional space could potentially come on the market," he said. "It’s not going to all come next year but Phase 2 and Cherrywood will definitely be in the market looking for occupiers, and we’d be confident that those centres will do well.”
Retail is one to watch for investors
From an investment point of view, Sayer believes retail could be the sector to watch out for in 2019. “There has been some mispricing in retail and some investors will find bargains amongst assets tarred by the overall negative sentiment towards the sector," he said.
"Retail is unlikely to move 100% online and investors will be paying particular attention to locations that service customer requirements that cannot be met online or provide attractions that extend beyond simply shopping including sites with opportunities for residential development."
Industrial to be the star performer
Meanwhile, strong demand, limited supply and increasing rents in the occupier market will drive investor interest in the industrial and logistics sector, according to Dwyer.
“Performance in the sector is being boosted by the online retail industry, plus Brexit may further enhance demand as U.K. industrial and logistics companies look for a market with stability and no restrictions to the movement of goods,” she said. “The only factor that may restrict the sector is supply both from an occupier and investor perspective.”
In terms of development, Gavin said it will be all about design and build in 2019. "A number of developers are getting shovel ready to deliver boxes as needed. I think we’re going to see a lot of activity next year.
"My view is that if Brexit goes through in its current format, it’s likely to be very positive for the logistics market," he said.
Big money continuing to chase PRS
After a very strong year in 2018, the PRS/build-to-rent sector is expected to continue to attract a large amount of investor interest next year.
“Much of the activity in this sector will involve investors making forward commitments several years in advance to pre-fund or pre-purchase investments given the well-publicised shortage of current stock,” Sayer said.
“With a large amount of capital chasing deals and looking to scale quickly, it is likely that there will be some profit taking by early investors in the sector.”