Dublin faces glut of offices if construction continues at current levels

Fund manager forecasts ‘very light’ returns from Ireland’s commercial real estate market

Construction in the Grand Canal Basin area of Dublin Docklands. Dublin faces a glut of offices if construction continues at current levels over the next three years

Construction in the Grand Canal Basin area of Dublin Docklands. Dublin faces a glut of offices if construction continues at current levels over the next three years

 

Dublin faces a glut of offices if construction continues at current levels over the next three years, an asset management firm has said.

Speaking at the Aberdeen Standard Investments European press forum, Anne Breen, head of real estate research, said she had be concerned about Dublin “dislocating from fundamentals” if the current level of commercial property construction is sustained.

Craig Wright, a European real estate analyst with the group, said he looks favourably on Dublin’s market over the next two years but “we would throw some caution on the longer term given how cyclical the market has been”.

He did note emerging signals suggesting that Ireland is starting to have a more consistent construction environment. Nonetheless, the company forecasts “very light” returns from Ireland’s commercial real estate market along with those in the UK, Poland and Finland.

Portugal, the Netherlands and Hungary, meanwhile, are expected to deliver “very heavy” returns.

The Aberdeen Standard executives said global investment flows into real estate have started to slow down from a recent high of around $1 trillion in 2015. And while Europe is beginning to improve on the back of positive economic trends, Dublin’s office buildings and high street retail outlets are expected to underperform the wider market.

Standard Life Aberdeen expects annual returns of around 4.5 per cent from Dublin offices and high street retail outlets compared to 8.3 per cent for Amsterdam offices and 6.2 per cent from German high street retail outlets.

Retirees

Ms Breen also spoke of the need to better develop cities and the markets where people want to “live, work and play”, which includes Dublin.

“Given the aging demographics and the volume of retirees we do not have enough retirement living space, pharmaceutical space... we need to think about what that means for the investment universe.”

The fund managers noted how cities in general need to move away from retail shops and focus better on distribution.

In Ireland, for example, 30 per cent of enterprises offer online platforms. That compares to 19 per cent in the UK, and is also higher than the US. The beneficiary, in commercial property terms, will be logistics facilities, Ms Breen said.

Aberdeen Standard Investments forecasts growth of returns of 6.2 per cent on Dublin logistics facilities over the next three years.

On Ireland’s residential market, Ms Breen said from an investor viewpoint the company would not be as negative as it was on commercial property, but she said it was quite a small market from an investment perspective.