‘There is a real possibility that we could attract longer term European and Asian investment to Ireland’

What would you like to see happening in the commercial property market in 2015? I would like to see continued flows of foreign direct investment (FDI) fuelling activity in the office and industrial occupier markets and improving economic conditions supporting activity in the retail sector. I would also like to see the beginning of a meaningful supply response in sectors of the market with a severe supply demand imbalance such as the Dublin office sector and the Dublin housing market.

With the pricing of prime assets moving from opportunistic pricing to core prices this year and the ongoing internationalisation of the investor base in Ireland, I would also like to see some further new entrants to the market. There is a real possibility that we could attract longer term European and Asian investment to Ireland particularly if large portfolios are offered for sale. Where are the best opportunities? Given the delayed capital expenditure on assets such as retail parks and shopping centres over recent years, coupled with the improving retail sales outlook, the retail sector will provide the best opportunities for investors. However investors cannot be passive with these assets. The best returns will require intensive asset management strategies in order to retain and grow the income profile for these assets and therefore increase the value. In some cases, this will involve re-development or refurbishment programmes but will also include a combination of re-gearing existing leases, reducing vacancy and negotiating new lettings.

Last year saw record increases in Dublin office rents which will start to filter out to secondary and provincial locations over the course of the next 12 months whereas retail and industrial properties are at the beginning of the next rental growth cycle which will give rise to opportunities for investors.

What will happen when the overseas money runs out? The Irish investment market has evolved from a debt-funded model to an equity-based model over the last number of years. A key feature of the market now is the presence of a large number of overseas investors, particularly in the loan sale space which is dominated by overseas private equity funds. It is inevitable that many overseas buyers will ultimately retreat and focus on alternative investments and jurisdictions in due course. However, encouragingly, there is strong interest in Irish real estate from other buyers such as the Irish REIT vehicles and longer-term European and UK institutional players who have a longer investment horizon.

I firmly believe we won’t ever revert to a wholly domestic market but that an element of Irish investment will continue to emanate from overseas in line with the trend towards globalisation that is evident in real estate markets across Europe.

Will property values continue to rise and, if so, by how much? Property values are ultimately dictated by the economic backdrop, underlying levels of activity in the occupier markets and by the balance between supply and demand in the market suggesting the potential for further rental and capital appreciation in 2015. With further strong rental growth anticipated in 2015, and the potential for further yield compression, especially given the exceptionally low interest rate environment, values will continue to rise over the course of the next 12 months with rental growth front-loaded until such time as new supply starts to come on stream.

The pace of appreciation will differ between sectors and sub-sectors, with the strongest potential for growth in the industrial and retail sectors which are only at the beginning of the rental growth cycle, as opposed to the office sector which has already recovered a lot of ground over the past 12 months. Further upward pressure on office rental values is anticipated in 2015. We believe that prime office rents in Dublin have the capacity to increase by another 17 per cent in 2015.

Johnny Horgan is head of capital markets at CBRE Ireland