CBRE predicts return to pre-pandemic investment levels in Irish real estate

Outlook 2022 report cites growth in demand for alternative investments and premium for ‘green’ assets

Green premium: Axa Investment Managers Alts and BCP Capital are planning a €50m sustainable overhaul of La Touche House in the IFSC.

Green premium: Axa Investment Managers Alts and BCP Capital are planning a €50m sustainable overhaul of La Touche House in the IFSC.

 

While 2022 may not surpass or even match the extraordinary €5.5 billion invested in Irish real estate in 2021, the ongoing emergence of society from the Covid-19 pandemic should mean another strong year for the commercial property market, according to CBRE.

Outside of the continued appetite of investors for traditional office, residential, retail and industrial sectors, the growth in demand for alternative investments such as data centres, life sciences and senior housing is expected to see the momentum built up in the last 12 months continue.

Speaking at the virtual launch of the 33rd edition of the commercial real estate agency’s annual Outlook report, CBRE Ireland managing director Myles Clarkesaid: “The landscape for commercial real estate is dramatically different from the last decade, yet long-term financial trends and the growth trajectory of the Irish economy remains intact. This presents immense opportunity. Indeed, the central theme of this year’s report is Identifying Opportunity”.

Commenting on their expectations for 2022, CBRE executive director, and head of research, Marie Hunt said: “Although the legacy of the pandemic will remain with us for some time yet, the strength of investor, developer and occupational demand is encouraging. Even sectors that have been severely impacted by Covid-19 should see transaction volumes revert back to 2019 levels over the course of the next 12 months – in essence going ‘back to the future’.”

Ms Hunt said 2022 will be marked by an increased focus on sustainability, with ESG (Environmental, Social and Governance) considerations now the lens through which occupation, development, investment and funding decisions are made. A “greenium” or green premium will be paid for those assets with the best green credentials, she said.

Offices

That focus on sustainability will, CBRE believes, become apparent this year in the office sector with a greater divergence in performance and pricing between prime and secondary buildings. This “flight to quality” will mean occupiers and investors favouring new and more sustainable buildings, along with an increase in the number of existing buildings being adapted for re-use as opposed to demolition and replacement. In terms of office take-up, CBRE say while they expect to see a further improvement over the coming months, it will likely be 2023 before activity returns to pre-pandemic levels.

Industrial & Logistics

Having proven itself to be the star turn of the Irish commercial property market in 2021 with some 265,000sq m of space taken up in Dublin, the industrial and logistics sector is on course for another strong performance this year. That success will come at a price, however, with rising build costs and site value inflation expected to mean rents surpass €118 per square metre in the Dublin market before year-end. With high demand and low vacancy rates though, CBRE says developers will be willing to take on more risk and kick-start speculative industrial and logistics schemes.

Retail

While the report notes that a number of new brands are due to open their first Irish stores in 2022, the recovery of the retail market will be tempered somewhat by supply chain disruptions and inflationary pressures that cause problems for retailers and consumers.

Multifamily

With no immediate or obvious solution to the housing crisis in sight, the report says institutional investors will continue to seek out opportunities to develop accommodation for the private rented sector (PRS) market in Dublin. Their interest is also likely to extend to the country’s core provincial cities, although CBRE says that viability will remain compromised outside of the core Dublin market.

While the report notes that investors in PRS are accustomed to regulation in every market in which they operate, they are “frustrated” by what it terms “the sheer number of interventions” that have been made in the Irish market over recent years. On this, CBRE says “it is critical that further Government intervention in this sector is now curtailed to avoid this abundance of capital opting to move into alternative investment sectors or jurisdictions”.

The report’s authors also caution that proposed restrictions by the Central Bank on the level of leverage within Irish-domiciled regulated funds have the potential to “impact negatively on the pool of capital targeting multifamily opportunities in the Irish market”.

Development Land

Looking at the prospects for the development land market, the report’s authors say they expect to see strong competition this year for well-located sites, particularly those that have existing planning permission and access to supporting infrastructure. Projects that offer developers an opportunity to retrofit older stock and bring buildings up to the highest ESG credentials will also be highly sought-after, CBRE says.

Hotels

Having recorded 18 sales with a combined value of €383 million in 2021, the ongoing recovery in trading performance and the emergence of new investors is expected to see the sale of a number of hotel portfolios this year. CBRE says it expects some €500 million in hotel trades to be transacted in 2022. Few of these will be distressed, CBRE says, noting that “most decisions to sell will be influenced by lifestyle reasons or owners making the decision to retire”.

Healthcare

Following one of its most active years on record, with €600 million invested in various assets, the healthcare sector is in line for a considerable increase in development activity in 2022. And with significant levels of pent-up investor demand, CBRE says it expects it to be a sellers’ market with few assets available to purchase. Nursing homes, particularly those that are “fully future-proofed” will be highly sought after, say the report’s authors.

Cork

Looking beyond the capital, CBRE says the supply of new, high-quality development that has come on stream in Cork city makes it attractive to investors seeking prime, sustainable stock.

While the report’s authors note investors are likely to target office investment opportunities, they expect to see good demand across the full range of sectors including multifamily, hotel and student accommodation, and industrial and logistics assets.