Ex­pand­ing tech firms to drive of­fice de­mand

The Irish Times - Business - - BUSINESS COMMERCIAL PROPERTY - John Mo­ran John Mo­ran is chief ex­ec­u­tive at JLL

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

The of­fice leas­ing sec­tor will con­tinue to per­form strongly, with no sign of a slow­down in oc­cu­pier de­mand. Take-up will again likely be dom­i­nated by ex­pand­ing ex­ist­ing oc­cu­piers, par­tic­u­larly TMT com­pa­nies (tech­nol­ogy, me­dia and telecom­mu­ni­ca­tions) look­ing for ad­di­tional space.

Large deals will con­tinue as with this year, which has seen three oc­cu­piers – Face­book, Google and Sales­force – ac­count for just over 40 per cent of take-up. The pri­vate rental sec­tor (PRS) as an in­vest­ment class has been very ac­tive, and we are ex­pect­ing this to con­tinue next year.

There is very strong de­mand from in­vestors, with vol­umes in 2019 dic­tated by the level of sup­ply that comes on to the mar­ket. If good-qual­ity as­sets be­come avail­able, we ex­pect them to be met by sig­nif­i­cant in­vestor de­mand and strong pric­ing. There is €8 bil­lion of cur­rent ac­tive in­ter­est in this sec­tor, much of it tar­get­ing ac­cess at the devel­op­ment stage.

Have rents and yields peaked across the var­i­ous as­set classes?

We are en­ter­ing a pe­riod of sta­bil­ity for the prop­erty mar­ket, which has seen a sig­nif­i­cant turn­around in the last num­ber of years. There are al­ways op­por­tu­ni­ties to gen­er­ate value, for ex­am­ple through clever as­set man­age­ment, or through devel­op­ment and re­fur­bish­ment, so this is where we may see ac­tiv­ity from in­vestors who are seek­ing higher re­turns.

Oth­er­wise any cap­i­tal growth will be mod­est at best. We do ex­pect to see fur­ther rental growth in some sec­tors. In­dus­trial rents are ex­pected to in­crease by an av­er­age of 3 per cent a year up to 2022, which is one of the high­est in Europe. Of­fice rents are sta­ble at €55- €60/sq ft, but we may see some lettings at lev­els above this for the best new of­fice build­ings in the core lo­ca­tions.

Where are the best in­vest­ment op­por­tu­ni­ties at this stage?

As men­tioned above, PRS will be very ac­tive be­cause of value-gen­er­a­tion op­por­tu­ni­ties in this space. In­dus­trial and lo­gis­tics (I&L) is also likely to be a sought-af­ter in­vest­ment class. Fun­da­men­tals are strong for the sec­tor, with steady oc­cu­pier de­mand against a back­drop of lim­ited good-qual­ity sup­ply driving rent up­wards.

Per­for­mance in the sec­tor is be­ing boosted by the on­line re­tail in­dus­try, plus Brexit may fur­ther en­hance de­mand, as UK I&L com­pa­nies look for a mar­ket with sta­bil­ity and no re­stric­tions on the move­ment of goods.

One thing to watch out for in 2019?

Brexit will con­tinue to cast an air of cau­tion on all prop­erty sec­tors by stalling de­ci­sion-mak­ing. In­ter­est rates and global cap­i­tal mar­kets also need to be fac­tored into de­ci­sion-mak­ing. The cur­rent be­nign in­ter­est rate en­vi­ron­ment favours in­vestors, and any changes will ul­ti­mately im­pact on end val­ues and pric­ing.

In terms of a prop­erty-spe­cific theme, flex­i­ble of­fice space will be one of the big­gest shifts across the real-es­tate in­dus­try that we have ever seen. Europe’s flex space is set to grow by up to 30 per cent per year over next five years; and, for in­vestors, flex space could of­fer new op­por­tu­ni­ties for those who em­brace in­no­va­tion and change.

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.