The Society of Chartered Surveyors Ireland Commercial Property Review and Outlook 2020

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The Society of Chartered Surveyors Ireland Commercial Property Review and Outlook 2020

Prime industrial rents in Dublin increased by 29% last year to €114psm

The key findings:

  • Prime industrial rents in Dublin increased by 29% last year to €114psm
  • Nationally industrial rents are predicted to grow by 4% this year - 56% of surveyors say the supply of large units will be less than demand
  • Prime 3rd generation office rents in Dublin increased to €675psm, an 11% increase year on year
  • In Munster 3rd generation rents increased to €250psm, a 12% increase
  • However, surveyors predict only modest increases of 1 to 2% overall for office rents in 2020
  • 50% of surveyors expect an increase of office supply in Dublin compared to 38% nationwide
  • Brexit and the increase in stamp duty were the main issues affecting the overall market in 2019
  • Surveyors say the strength of the domestic economy and the delivery of a new UK-EU trade deal will be key issues this year
  • But the Society expects the impact of the evolving Coronavirus situation and the make-up of the new government will be hugely significant
  • Prime retail rents were down 9% in Dublin and 7% in the rest of the country
  • But at €6485psm, Grafton Street rents are over 10 times higher than neighbourhood shopping centres in Dublin

The star performer of the commercial property market in 2019 was the prime industrial sector, with rents soaring 29% during the year in Dublin driven by the demand for high spec new units from logistic, tech and data firms.

Nationally, prime industrial rents are forecast to continue to grow by 4% this year due to the undersupply of suitably sized stock according to the Society of Chartered Surveyors Ireland Commercial Property Review and Outlook 2020.

Fifty-six per-cent of respondents to the survey believe the supply of prime industrial high spec stock over 500msq will not meet the demand of firms seeking to grow and expand their operations. In Munster 100% of respondents believe demand will outstrip supply.
Competition in industrial property is most intense on the outer ring of the capital but the commercial agency surveyors say demand is also high in Galway, Athlone, Waterford and Cork.

Office

According to the 400 commercial agency surveyors nationwide who took part in the survey, the Dublin office market grew last year but the expectation is it may plateau next year with modest rent increases of just 1 to 2% predicted.

This reflected a broader national picture of increased supply, steady if unspectacular take-up and an expectation that rents will remain largely unchanged through 2020.

That said, the report found that last year prime third generation office rents in Dublin increased to €675psm, an 11% increase year on year, while in Cork the corresponding figure was €250psm, a 12% increase

While half of respondents expect supply in Dublin to increase, the figure for the rest of the country is 38%. Surveyors predict overall office rents will only increase by a modest 1 to 2% this year.

Several agents referred to a trend whereby tenants, especially tech companies with specific demands, take space ahead of need – due to supply shortages - and hold it until it is required. Agents believe there will be a considerable amount of this ‘grey space’ coming to market.

Overview

The President of the Society Johanna Gill said the two issues which dominated the commercial property sector last year were Brexit and the increase in stamp duty on commercial property.

It’s clear from our report that there are micro-markets emerging across the commercial sector, one, urban based market engaging multi-national businesses affected by international factors such as Brexit and a regional market, driven by domestic demand.”
“While major office and hotel accommodation reached completion in Dublin, there was a sense in 2019 that much of the market activity was tenants moving around, with few new tenants coming into the country. The sense of our members is that there will be no major influx of companies to Ireland when Brexit is fully completed. The sense is that movement has already happened
.”

Our members are seeing little new development activity in provincial towns, as the overhang of property commenced during the ‘Celtic Tiger era’ reaches financial viability and is completed. This has long been a concern for the Society, and we would like to see much more being done by government to encourage small and medium sized businesses to locate in provincial towns as outlined in Project Ireland 2040” she said.

The increase in stamp duty announced in October’s Budget was the dominant issue in Q4. According to the report surveyors strongly believe the increase has, and will have, a negative impact on the performance of the market.

The two main concerns expressed by surveyors was that the rate of stamp duty here was now one of the highest in the EU and that secondly this was an unexpected additional increase following earlier increases. There is also the knock-on effect on our international reputation and the possibility that investors may go elsewhere” Ms Gill said.

In 2020 the interplay of the strength of the domestic economy, the delivery of a new UK-EU trading relationship after Brexit and the ability to absorb the recent increase in stamp duty will influence the levels of demand for commercial property. While the Coronavirus situation is still evolving, all the signs are that its impact will be very significant. The delayed formation of a new government adds further uncertainty to what will be a challenging year” Ms Gill said. 

Retail

The last few years have been challenging for retail and 2019 was no different. While Grafton Street rents rose 7%, overall prime retail rents fell 9% in Dublin and 7% in the rest of the country.

It’s clear from the report that all retail operations, whether in urban city centres or smaller rural towns are continuing to grapple with the challenges posed by online and the transition to a more ‘experiential shopping model’.

Johanna Gill said smaller towns are facing particular challenges. “Several surveyors noted that these towns are often bypassed as people head to the cities to do a bigger shop. Some of them are trying to support a high street and an out of town shopping centre but it’s very difficult to maintain activity in both.”

Despite the growing economy and improved consumer sentiment there has been a continued reduction in the demand for retail space from tenants. As we’ve seen its actually the logistic and industrial property sectors which are benefiting from the upturn via online shopping and delivery.”

One positive trend our members are seeing is online stores developing pop-up shops to showcase the products they are selling on their websites. This is very welcome and worth monitoring.”

Residential investment and development land

The private rental market, including Build-to-Rent and shared housing models continues to perform very strongly with an ever-larger cohort of tenant and an increased supply of purpose-built property to rent.

The movement towards the development of large-scale portfolios is likely to continue as demand for high quality rental properties in urban areas expands.

While the supply of development land remained largely unchanged around the country in 2019, in Dublin, where prices are higher, there were some indications of an increase. Thirty-six percent of surveyors said they expected to see more supply in the capital in 2020, with 28% saying it would be equal to demand and 32% saying it would be less than demand.

The full report is available at www.scsi.ie or on request.

Article Published: 12/03/2020