Commercial property sales volumes look set to ease off

Sale volumes in the commercial property market seem set to ease off somewhat this year when most of the activity is expected to involve the resale of assets and portfolios bought in recent years, according to the “Outlook 2016” report issued yesterday by commercial property specialists CBRE.

As well as re-trading or refinancing properties, investors will be endeavouring to maximise rental income from existing assets and concentrate on potential development opportunities, said Marie Hunt, executive director and head of research. She expects to see more long-term institutional investors, including many new entrants from overseas, being particularly active in the market this year. Office investments in the central business district and the suburbs as well as prime high-street retail properties and prime industrial assets were likely to offer the most attractive returns in 2016. The agency also expects to see increased focus on investment in healthcare, student housing and hospitality.

The CBRE report described 2015 as an exceptionally busy year with 176 investment transactions of greater than €1 million concluded with an overall value of €3.5 billion. In addition, more than €7 billion of loan sales traded in the same period. Although growth would not be as spectacular as in the past two years, returns in 2016 would again be “very strong” with interest mainly on returns from income and rental growth as opposed to yield compression.

Enda Luddy, managing director of CBRE Ireland, said that although the majority of sales last year were equity transactions, there were clear signs of an improvement in the availability of debt for viable propositions over the course of the year. While debt funding for speculative development remained elusive and was likely to do so for some time yet, 2015 saw the beginning of the next development cycle in some sectors with several office schemes commencing in Dublin and to a lesser extent in the city hotel market.

Luddy said the recovery in the retail sector culminated in what proved to be one of the busiest Christmas trading periods for Irish retailers in years. The recovery in consumer sentiment and retail sales fuelled considerable occupier and investor activity in Dublin and in other major cities also.

The CBRE report forecast that prime headline office rents in Dublin would reach €700 per sq m (€65 per sq ft) by the end of 2016. However, developers wanting to de-risk new schemes by pre-letting the new building may be in a position to offer more competitive terms. The report said suburban rents would also increase significantly over the next 12 months. While there were no concerns about oversupply, it was important to keep this under review as the year progressed.

Dealing with the retail sector, the report said the biggest challenge this year would be securing stores for traders in many of the most sought-after schemes and high streets considering that many are now close to or at full occupancy. The agency said there was likely to be a return to key money for leases in prime locations.

CBRE calculated that there 113 development land sales last year with an overall valuation of €770 million apart from the sale of almost 1,700 acres in Project Clear for €503 million. A broadly similar volume of sales is expected this year with most of the sites coming from loan books sold in recent years.