Property prices on a rising tide with `feel good' air in the market
IRISH property prices are continuing to rise and this trend looks set to continue, to the latest European investment report from Jones Lang Wootton.
The agency says the market remains buoyant in all sectors at a time when the economy is growing at around 5 per cent, inflation is in check and there is a very benign interest rate scenario.
Unlike in the UK, there is a strong "feel good" factor towards property and with EU structural funds likely to fuel growth in some sectors, the outlook for property remains favourable.
JLW says the investment market in the last year has been very active with keen demand for the properties available. In fact, the shortage of quality product has fuelled significant price increases in certain sectors.
One of the notable features of the market in recent months has been the amount of both UK and European money actively seeking investments in Dublin. "This trend is set to continue with the increasing internationalisation of Dublin (helped by the success of the International Financial Services Centre) and the favourable overseas reports on the economy"
The agency says institutional funds continue to be active in all sectors - but recent trends show a preference for retail and notably industrial, to the detriment of offices.
The growing number of international firms taking space in Dublin is likely to continue. Although their requirements for break clauses and broader location criteria would have deterred some investors previously, scarcity of opportunities is making such investments more acceptable.
JLW concludes that rents are rising slowly with rent reviews of older offices and industrial units still lagging behind rents achieved on new buildings. The paradox remains that while investors believe new office space will let at £16 to £20 per square foot, reviews are still only showing rents of around £11 to £12 per square foot. This anomaly will be corrected by rent reviews and a breakthrough is expected later this year.
To illustrate the point, JLW recalls that at Eastpoint, a new office location in the Dublin docklands, rents of £11 to £12 per square foot are standard for third-generation buildings. Demand is largely from overseas companies, such as America on Line and Oracle Corporation.
The review shows the office market this year has again been dominated by overseas companies establishing or expanding in Ireland. The home-based market is also strong.
These conditions are resulting in the maintenance of headline rents, which had previously been undermined by generous contributions and other concessions. The only concession which appears to be here to stay is the break clause. Most investors are now prepared to live with breaks, and the stronger market is reducing their risk by including penalties of up to two years rent for tenants exercising the breaks.
The report says that overall market conditions are set for a period of continuing good returns with a growing economy and a vibrant Dublin continuing to fuel the market and sustain the climate of confidence in property.