05 March 2015
Main Findings:
The Society of Chartered Surveyors Ireland Commercial Property Review and Outlook 2015
- Prime office rents expected to rise by 12% in Dublin in 2015
- Acute supply shortages in the capital could however see headline rents reach €592 per sqm
- SCSI says shortages of modern office space and planning delays may deter FDI
- Prime retail rents in Dublin expected to rise by 10%
- Residential development land values expected to increase by up to 17.5%
- Prime industrial rents under 500 sqm in Dublin rose by 34%
A new report on the commercial property market shows that the office sector has been the main driver of an exceptional year of overall investment of €4.5bn in the commercial property sector and that the recovery is now beginning to spread from Dublin to regional centres.
Office Sector
According to the report there was a 29% year on year increase in prime office rents in Dublin in 2014 driven by strong demand from Foreign Direct Investment companies.
The Society of Chartered Surveyors Ireland (SCSI) Commercial Property Review and Outlook 2015, found that prime office rents in the capital were priced at €452 per sq m at the end of 2014, largely driven by a lack of supply. Average third generation offices fetched €389 per sqm representing an increase of almost 14%.
SCSI members expect prime office rents in Dublin to increase by 12% this year. In Connacht/Ulster they are expected to increase by 9% and in Munster and Leinster by 5%. However given the acute shortage of “Grade A” office space in Dublin industry experts anticipate rents for this property type could well hit €592 per sqm by year end rising to €645 per sqm in 2016 if positive economic growth trends continue.
Eamonn Maguire, Chair of the SCSI Commercial Agency Professional Group said “The increase in rents has been largely due to a lack of supply combined with higher levels of demand from domestic and international companies seeking new office space or to expand existing operations as we have seen several of the large Technology, Media and Telecommunications companies do in 2014.”
“Ensuring the availability of development finance for measured speculative development is key and will address the supply issue while also supporting job creation. But we have some concerns that companies won’t want to wait around for 18-36 month completion timeframes and that is why it is imperative the Government addresses this issue immediately” he said.
Four hundred and twenty Chartered Surveyors were surveyed for the SCSI report which was published in conjunction with Future Analytics Consulting.
Retail
In the retail sector, capital values in Dublin’s Grafton Street alone grew by approximately 28% in 2014. Rents increased by 11.5% for prime rental in Dublin following declines in recent years as rental prices reached €4,491 per sqm. Respondents to the survey expect prime retail rents in Dublin to increase by 10% in 2015. In Connacht/Ulster, they are expected to increase by around 9% and in Munster and Leinster by approximately 5.5%.
“2014 was a turnaround year for the retail sector which has been hit badly in recent years. As consumer confidence has increased, the prospects for the retail sector have improved. For example in major town centre style malls members reported rent increase of 17%. We now anticipate increases in rents of between 5-10% across the country this year. Some of the more peripheral regions will however, continue to struggle.
Development Land
Development land values increased in 2014, most notably by 32% in Dublin, 24% in Munster and Leinster and 4% in Connacht/Ulster for residential development land. SCSI members anticipate residential development land values in Dublin will increase by around 17.5% in 2015.
“The increase in values for development land reflects the fact that it has now become viable to build again. The introduction of the Construction 2020 measures to reduce the costs associated with development will further support its viability and help bring more development on stream. Up to now it has not been viable, but it is our hope that we will see more commercial and residential building to alleviate supply shortages and ensure a more sustainable market is developed” Maguire said.
Industrial
The industrial sector also experienced positive growth, much of which was focussed on the Dublin market. Prime industrial rents under 500 sqm increased to €82 per sqm, representing an increase of approximately 34% year on year.
“With the emergence of a rapidly growing economy, increased demand coupled with improvements in international trade, the resultant inflow and outflow of goods and materials is underpinning demand particularly in the logistics sector” Maguire said.
Investment
Investment in the commercial property market accelerated to around €4.5bn in 2014, up from €2.6bn in 2013 and despite a slightly slower start to 2015, increased investment looks set to continue in 2015.
“The growth in the investment market was largely driven by the prospect of returns which at 40%, outperformed Irish bonds and equities. The changes to Capital Gains Tax relief was also a factor and it will be interesting to see what effect, if any, these changes have on investment volumes in 2015” Maguire concluded.
The SCSI Commercial Property Review & Outlook 2015 is available to download here.