What would you like to see happening in the commercial property market in 2015? The leasing markets will perform well in 2015 as a result of greater economic activity. We will see acute shortages in some sectors, particularly the city centre office market in Dublin where rents will grow strongly. This is less damaging in the medium term as a result of upward and downward rent reviews. A more volatile rental framework has its implications for investment pricing and yields may move out, reacting to strong rental growth. Investment pricing is ahead of the occupational markets in most cases, 2015 will be a year where this gap should be narrowed.
Where are the best opportunities for investors? Opportunities for investors are harder to find now than they have been in a long time. The best opportunities for many investors will require them to take more risk than has been necessary in 2013 or 2014. The rising tide of the market correction that we have seen lifted all boats. Well informed investors who take leasing risk stand to make good returns in 2015 and beyond. Pricing of well-let, stable assets makes it difficult to drive strong returns for passive investors. I expect larger investors will forward-fund prime new development to drive returns.
What will happen when the overseas money runs out? Overseas capital played a very big part in curing our market. In 2010 and 2011 there was almost no investment activity, overseas investors moved in to the void and did very well. Domestic investors took confidence from increased investment activity and improving leasing markets. The combination of both buyer groups drove pricing. As international buyers become less dominant and we return to more normal levels of activity, I expect the traditional funds and REITs will fill any void. We should see the emergence of private property companies as an investor group that has been absent since before the crash.
Will property values continue to rise and, if so, by how much? Values will continue to rise in 2015, albeit at more sustainable levels than in 2014. Activity levels will fall, although I don't expect prices to fall. The private investor market up to about €2 million has become quite heated as the capital gains tax exemption draws to a close. Total returns in commercial property could hit 15 per cent in 2015 where rents grow. 2015 is likely to see some rents reviewed upwards for the first time in a long time which will help landlords drive performance.
Duncan Lyster is a director of Lisney
