Commercial Property
Commercial property values were adversely affected in 2020 but some sectors were resilient, writes Marie Hunt, Executive Director, CBRE Ireland
CBRE Ireland runs the rule over the commercial property sector, which showed resilience in 2020 despite property value declines
To say that 2020 was unprecedented is an understatement, with the pandemic and government’s reaction to it having impacted on all sectors of the economy, not least the commercial property market. However, it is important not to generalise. Some sectors such as retail, leisure and hospitality were severely impacted as a result of lockdown and travel bans, and will take some time to recover. Offices were also negatively impacted with occupants forced to work remotely for most of the year.
Meanwhile, almost all sectors suffered from a deterioration in transactional activity as a result of occupiers and investors not being able to travel to inspect buildings or assess opportunities. Many companies understandably put off decisionmaking in order to focus on their core businesses, and consider the longerterm implications of Covid-19, before making location or expansion decisions.
However, some sectors of the property market benefited from the changed circumstances, with neighbourhood retail schemes and supermarkets experiencing a surge in activity, and industrial and logistics property being highly sought after as e-commerce sales spiked and demand for premises to store foodstuffs, PPE and pharmaceutical products increased. The multifamily sector also demonstrated resilience throughout 2020, supported by the fact that the housing market remains fundamentally undersupplied.
Although many sales campaigns were postponed, transactional activity in the Irish commercial property market nevertheless reached approximately €2.4bn by the end of
September. Annual investment spend for 2020 is expected to be close to €3bn, which is a decent result considering the challenging market conditions during the year. The vast majority of investment transactions concluded in 2020 were office and residential properties. We also saw significant consolidation in the nursing-home sector.
The slowdown in transaction volumes and uncertain economic climate had a divergent impact on property pricing. Although yields in sectors such as retail, hotels and student accommodation softened during 2020, yields in the industrial, offices and multifamily sectors proved extraordinarily resilient.
This is in stark contrast to the last cyclical downturn in the Irish commercial property market, following the Global Financial Crisis, which saw pricing in almost all sectors fall dramatically in response to the complete removal of liquidity. Commercial property values were adversely affected in 2020 but not as drastically as in 2008.
The retail sector has borne the brunt of this particular cyclical downturn, however, with falls in both rental and capital values recorded.
Encouragingly, Irish real estate remains attractive to investors and there is considerable international capital looking to deploy into Ireland, once travel is permitted. The recovery in transactional activity in the investment sector of the commercial property market will be brisk when it occurs.
Investors will focus on core assets in the office, industrial and housing sectors with some investors considering alternative niche investment sectors such as social housing, healthcare, data centres and life sciences. There has been increased appetite for sale and leaseback opportunities, and this is likely to escalate in 2021 as companies look to release equity and reduce costs, while securing continuity of their core business.
Covid has accelerated many structural trends that were already impacting the commercial property market, not least environmental issues and the growth in online retailing and remote working. We need to learn lessons from what 2020 has taught us and reignite the market, after what has been a very challenging year.
CBRE will be releasing their Outlook 2021 report on 12 January 2021, looking at key predictions for all sectors of the property market for the year ahead.