Pri­vate rented sec­tor may not be best bet

The Irish Times - Business - - BUSINESS COMMERCIAL PROPERTY - James Nu­gent

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

It ap­pears there’s a wall of money chas­ing the pri­vate rented sec­tor (PRS) and we an­tic­i­pate this sec­tor will dom­i­nate the head­lines as overseas and lo­cal in­sti­tu­tional in­vestors ac­tively chase down suit­able op­por­tu­ni­ties. The of­fice sec­tor will con­tinue to be ac­tive, with large-scale oc­cu­piers hav­ing to pre-lease new build­ings; in the city there are only three of­fice build­ings due for com­ple­tion in 2019 and this will make it a very in­ter­est­ing year.

Have rents and yields peaked across the var­i­ous as­set classes?

There is no doubt we are at or near the top of the cur­rent cy­cle; the real ques­tion is how long it will last. The type of in­vestor has changed, with in­vestors with lower-cost cap­i­tal now look­ing at our mar­ket.

Gen­er­ally speak­ing, rents have prob­a­bly peaked but, given the short­ages of sup­ply in the of­fice mar­ket, it may be that there is some lim­ited but prob­a­bly not sus­tain­able growth dur­ing 2019. Yields are hold­ing sta­ble, but the con­sen­sus is that any move­ment will be out­ward.

Where are the best in­vest­ment op­por­tu­ni­ties at this stage?

As men­tioned above, much of the focus will be on PRS. But, given the in­ten­sity of com­pe­ti­tion and a ques­tion mark over the sus­tain­abil­ity of rents, along with the like­li­hood of fur­ther Gov­ern­ment in­ter­ven­tion, it may not prove the best-placed in­vest­ment. For the brave, the re­tail mar­ket may pro­vide bet­ter re­turns. The re­tail oc­cu­pa­tional mar­kets are in a pe­riod of flux with UK operators un­der pres­sure. This has af­fected ten­ant de­mand with a knock-on ef­fect to rents and yields.

There is a grad­ual re­al­i­sa­tion that a phys­i­cal re­tail pres­ence is re­quired along with a vir­tual pres­ence. For these reasons, it may be that well-lo­cated re­tail units where shop­pers can get a fuller ex­pe­ri­ence will prove to be a good bet.

One thing to watch out for in 2019?

The econ­omy is now heav­ily re­liant on in­ter­na­tional busi­ness, with the of­fice sec­tor al­most dom­i­nated by North Amer­i­can en­ti­ties. Sim­i­larly, a sig­nif­i­cant por­tion of prop­erty in­vest­ment is from overseas in­vestors. As a con­se­quence, any in­ter­na­tional changes will have a huge im­pact on our mar­ket. Brexit is still un­clear and the Trump ad­min­is­tra­tion’s poli­cies to­wards US en­ti­ties trad­ing abroad is still evolv­ing.

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