Prop­erty prospects for 2019: experts’ view

Fringe ur­ban ar­eas are likely strong per­form­ers

The Irish Times - Business - - FRONT PAGE - Adrian True­ick Have rents and yields peaked across the var­i­ous as­set classes? Where are the best in­vest­ment op­por­tu­ni­ties at this stage? One thing to watch out for in 2019? Adrian True­ick is di­rec­tor of in­vest­ments Ire­land at Knight Frank In­ter­na­tional

Which sec­tors of the mar­ket will be most ac­tive next year?

The res­i­den­tial in­vest­ment mar­ket is likely to see another strong year, with in­creased de­mand from both Euro­pean and in­vestors from the US driving ac­tiv­ity . There is an es­ti­mated €375 bil­lion tar­get­ing the Ir­ish pri­vate rental sec­tor (PRS), with buyers now look­ing beyond Dublin to the main pop­u­la­tion cen­tres in Cork, Lim­er­ick and Gal­way.

As most of the stand­ing blocks have now traded, new stock will come from joint ven­tures or for­ward pur­chase agree­ments with ex­ist­ing res­i­den­tial de­vel­op­ers. The vol­ume of these trans­ac­tions may re­main low in the early months of the year as de­vel­op­ers look to re­vise older plan­ning con­sents in line with the new PRS de­sign stan­dards be­fore sell­ing. There is also po­ten­tial for a num­ber of larger of­fice sales, with the ma­jor pre-lettings achieved in 2018 likely to re­sult in in­vest­ment trans­ac­tions in the new year.

Although in­ter­est rates in the US and UK are trend­ing up­ward, eco­nomic growth across Europe re­mains sub­dued and there is lim­ited prospects of the EU in­creas­ing bor­row­ing costs in the medium term. Although we do not an­tic­i­pate any sig­nif­i­cant fur­ther tight­en­ing in prime prop­erty yields, the con­tin­ued low in­ter­est rate en­vi­ron­ment sup­ports cur­rent price lev­els, sug­gest­ing rates will re­main steady across 2019.

For of­fice rents, the devel­op­ment pipe­line should de­liver an ad­di­tional 600,000sq m of new space by 2020. How­ever, pro­jected com­ple­tions fall sharply in 2019. De­liv­ery in Dublin 2, the most ac­tive mar­ket, is an­tic­i­pated to be less than 40,000sq m. As much of the stock un­der con­struc­tion is al­ready pre-let, there is po­ten­tial for a fur­ther in­crease in rents by mid-year as the sup­ply falls sig­nif­i­cantly short of de­mand. Fringe city ar­eas in­clud­ing Dublin 1, 7 and 8, as well as some of the sub­ur­ban mar­kets, are likely to per­form strongly in 2019. Rents in these ar­eas have lagged the prime mar­ket and both rents and yields are likely to tighten as oc­cu­pier de­mand pushes out from the cen­tre. Pro­posed large-scale de­vel­op­ments on O’Con­nell Street, St James’s Gate and Smith­field have the po­ten­tial to be cat­a­lysts for change, cre­at­ing new prime sub-mar­kets in the city and at­tract­ing fur­ther in­vest­ment.

Out­side Dublin, the city cen­tre mar­kets of Cork and Gal­way of­fer at­trac­tive in­vest­ment op­por­tu­ni­ties, with new of­fice devel­op­ment in Cork in par­tic­u­lar pro­vid­ing in­sti­tu­tional-qual­ity as­sets with po­ten­tial for higher re­turns. Sim­i­larly, the high- street re­tail mar­kets in these lo­ca­tions now look at­trac­tive rel­a­tive to Dublin, with yields on Pa­trick Street above 6 per cent.

A num­ber of shop­ping cen­tre port­fo­lios were ac­quired be­tween 2014 and 2016. The buyers, typ­i­cally pri­vate-eq­uity funds, gen­er­ally hold for a fourto five-year year pe­riod and so would have an­tic­i­pated ei­ther a trade sale or a grad­ual sell­down of in­di­vid­ual cen­tres. With re­tail rents, par­tic­u­larly in pro­vin­cial lo­ca­tions, con­tin­u­ing to strug­gle, the op­por­tu­ni­ties to trade at the pro­jected value lev­els may be lim­ited. While some in­vestors may re­tain the as­sets as long-term hold­ers, it is likely that some own­ers will elect to re­cy­cle their cap­i­tal in the next 12 months, po­ten­tially sell­ing at a dis­count.

Shop­ping cen­tre and re­tail park own­ers may look to add value by se­cur­ing per­mis­sion for res­i­den­tial devel­op­ment over ex­ist­ing re­tail and sur­face car parks.

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