Office demand to drive commercial property sector to third bumper year

Ireland’s commercial property sector is expected to post another bumper year in 2019, with office space take-up likely to remain strong and build to rent gaining in popularity.

According to estate agency CBRE, there remains "active demand" in the office market after a year which saw record transactions, including Facebook's rental of the former AIB Bankcentre site in Ballsbridge.

It could be "three in a row for Dublin's office market" said CBRE executive director Marie Hunt, referring to the fact the past two years have seen above-average take-up volumes.

And while technology companies will remain important in the market, the public sector is expected to take “quite a lot of space” this year, as are financial and business services companies, Ms Hunt said at CBRE’s event in Dublin’s RDS.

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While office take-up is forecast to continue to increase, so too is investor interest in the build-to-rent sector. In 2018, more than €1 billion was invested in the sector, up four times on the previous year, according to CBRE’s newly-appointed managing director Myles Clarke.

"From my perspective, the extent to which build to rent increased as a proportion of overall investment spend in Ireland in 2018 was particularly remarkable," Mr Clarke said. "Build to rent is now becoming a mainstream investment sector in its own right, with an ability to help alleviate some of the well-documented pressures in the Irish housing market."

Developments in the build-to-rent sector this year are likely to move beyond the core area of Dublin, as are developments featuring property for sale alongside build to rent, CBRE said. Ms Hunt added that more applications for “co-living” developments were expected now that the Republic’s planning regime supports that.

Retail

Although there was a positive outlook for most commercial sectors, the prospects for retail are less certain. As more than 11 per cent of retail sales in Ireland occur online, CBRE believes retailers need to offer superior customer experiences. While schemes with an emphasis on food and drink or entertainment are somewhat insulated against the issues currently facing retail in the UK and the US, retailers in between are likely to be troubled.

Rental growth in the retail sector is expected to remain “elusive” this year, Ms Hunt said, adding that increases will be limited to prime assets.

Another sector in flux is hotels, with Government controls on short-term rentals such as Airbnb expected to kick in in the near term. Asian interest in Dublin city-centre assets will likely boost transaction volumes this year as more rooms are required to service the city’s requirements.

But despite the positive outlook across most sectors, there are some clouds on the horizon, Ms Hunt said.

With interest rate rises expected in the latter part of the year, potential trade disputes and debates around digital tax, the longer-term outlook is uncertain. Brexit, she added, “has the potential to dent confidence and impact negatively on Irish economic performance”.

“As the cycle matures further, the search for secure, stable, long-term income will escalate,” Ms Hunt concluded.