Sheer weight of capital to drive demand again in 2020
Interest to remain strong in office and PRS as funds seek out long-term secure income
Traders work on the floor of the New York Stock Exchange: One thing to watch out for in 2020? The fortunes of the US equities market and its tech sector, in a period of increased volatility, is a key area to watch in the year to come. Photograph: REUTERS/Lucas Jackson
We expect all sectors of the occupier and investment markets to continue to be active in 2020, based on current occupier demand and due to the weight of capital still chasing income-producing assets.
Interest will remain strong in the office and the private rented sector markets, as both are showing strong occupier demand and continued rental growth, albeit at a slower pace than in previous years.
We are seeing increasing demand for logistics and industrial investment opportunities as demand from occupiers increases, and we are also seeing the re-trading of hotels bought during the downturn as investors look to recycle equity.
In terms of rents, we are getting close now to the top of the current cycle, but demand for stock will continue to put pressure on yields, and so we expect them to remain at current levels or, in the PRS sector, to tighten slightly.
Any outward movement of bond yields or interest rates will, in time, lead to outward movement in property yields. However, the prospects of this look extremely unlikely in the short term as various quantitative easing measures continue into 2020.
So where are the best investment opportunities at this stage? In any marketplace, opportunities are driven by the dynamics of supply and demand. Demand is unabated from institutional funds looking to acquire long-term secure income as they chase returns in an almost-zero interest rate environment. The demand from occupiers in the residential and office sectors remains strong, therefore these sectors represent relatively safe and secure income sources. The trick, in part, in the area of the delivery of new accommodation, will be to construct this new space on time and within budget – not easy an easy task at a time of ever-increasing costs.
Cork will deliver a new marketplace for new-build PRS, while an active office occupier market will drive the Cork investment sector in 2020. As investors try to secure exposure to the logistics sector, but with little supply of this investment type, we foresee values continuing to strengthen for opportunities that do emerge.
One thing to watch out for in 2020? The fortunes of the US equities market and its tech sector, in a period of increased volatility, is a key area to watch in the year to come. Our property market, in terms of US occupiers who take office space, to the workers who rent and buy residential accommodation, to the US funds that provide working capital to build these projects – and the US investors who buy them – is very reliant on the continued expansion of – and the further foreign direct investment from – these US entities.
Never mind how reliant the State has become on the tax take from the US tech sector; volatility in the US money and tech markets could have a far bigger impact on the Irish property market than Brexit.
Mark Reynolds is deputy managing director of Savills Ireland