Small deal: commercial property investment down 35%

Transactions below €20m make up majority of sales, says Cushman & Wakefield

The €126 million forward funding by Irish Life of Grant Thornton’s new HQ at 13-18 City Quay in Dublin was the largest transaction

Turnover in the Irish commercial property investment market was down 35 per cent in the first quarter of 2017 compared with a year ago, according to fresh research from Cushman & Wakefield.

The subdued Q1 spend of €478 million was hampered by a lack of prime product for sale and could mark a return to a more normalised value of investment spend.

Still, according to Marion Finnegan, chief economist at Cushman & Wakefield, "it's worth noting that the number of transactions held steady on a year ago – 56 compared with 55 in Q1 2016. But a key trend that's emerging is the prominence of small to medium-sized transactions.

“The €10 million to €20 million category accounted for the largest share of capital invested, about 29 per cent, while the €1 million to €10 million bracket absorbed a further 22 per cent. This compares to just 6 per cent and 18 per cent, respectively, during the same period a year ago.”


Irish Life

The largest transaction completed was the €126 million forward funding by Irish Life of Grant Thornton's new HQ at 13-18 City Quay in Dublin. This investment represented 26 per cent of turnover and was also the only one over €50 million.

Another notable sale was the €37.7 million purchase of the Montrose Student Residence, just off the Stillorgan Road near UCD, by Hines, which has secured a net initial yield of about 8 per cent on the deal.

Offices were the most popular asset class in the first quarter of 2017, accounting for 41 per cent of the spend, followed by retail at 24 per cent and industrial at 9.3 per cent.

In fact, there was a sharp acceleration in the industrial spend, from €12.7 million in Q1 2016 to €44.3 million this year, driven mainly by the sale to Irish Life of Unit Q1 at Aerodrome Business Park for about €28 million.

Meanwhile, a report from the same agency on the Dublin office market points to strong levels of take-up during the first quarter of 2017. The 94,750sq m of space occupied during Q1 was up 58 per cent on the final quarter of 2016 and is the highest quarterly figure since 2007.

“This is also the seventh consecutive quarter for above-average take-up activity, which underlines the strength of the market,” said Ms Finnegan.

"Even if the figures are somewhat flattered by the occupation of large blocks, like the new Central Bank on North Wall Quay and Arthur Cox at 14-18 Hatch Street in Dublin 2, the remaining space taken up is still 35 per cent above the quarterly average."

She pointed to “anecdotal evidence” that demand for office space picked up over the first quarter of 2017 after some “Brexit-related cautiousness” in the latter part of 2016. “Financial and professional sectors are likely to be the main drivers of demand over the next year,” she said.

Dublin’s central business district accounted for 64 per cent of take-up in the capital, up significantly on the same period last year.

Cushman & Wakefield now predicts that office take-up will be “on a par with, if not exceed” last year’s record total. It points to 130,400sq m of office space signed and reserved at the end of March. When this is combined with pre-let and reserved space due to be delivered by year end, a record amount of space could be occupied by the end of 2017.

Net vacancy

While supply, particularly in the city centre, is increasing, the agent reports that the net vacancy rate in the central business district now stands at 4.2 per cent, while the overall figure for the Dublin market is 12 per cent.

However, rents are not expected to rise sharply over 2017.

Cushman & Wakefield sees headline levels at €646/sq m by the end of the year, and it says these will rise no more than 9 per cent out to 2021. This is due to the large amount of office space under construction in the capital.

“Development activity is set to remain a key feature of the market for next three years,” according to the agent. “A number of new schemes commenced construction during the three months to March, bringing the total quantity of space under construction to 314,350sq m across 31 schemes.

“Of this, 178,250sq m is due to be delivered by year end 2017, 32 per cent of which is either pre-let or reserved and therefore boosting take-up activity for the remainder of the year.”