While 2022 may not exceed or even match the extraordinary €5.5 billion invested in Irish property in 2021, the company’s ongoing emergence from the Covid-19 pandemic should mean another strong year for the commercial real estate market, according to CBRE.
Apart from continued investor appetite for the traditional office, residential, retail and industrial sectors, growing demand for alternative investments such as data centers, life sciences and senior housing should see the momentum gained over the past 12 months continue.
Speaking at the virtual launch of the 33rd edition of the commercial property agency’s Outlook annual report, CBRE Ireland Managing Director Myles Clarkes said: “The commercial property landscape is dramatically different from the past decade. , but the long-term financial trends and growth trajectory of the Irish economy remains intact. This presents a huge opportunity. Indeed, the central theme of this year’s report is the identification of opportunities”.
Commenting on their expectations for 2022, CBRE’s Executive Director and Head of Research, Marie Hunt, said: “While the legacy of the pandemic will remain with us for some time to come, the strength of demand from investors, developers and professionals is encouraging. Even sectors that have been badly hit by Covid-19 should see trading volumes return to 2019 levels over the next 12 months – in essence, a “back to the future”.
Ms Hunt said 2022 will be marked by an increased focus on sustainability, with ESG (environmental, social and governance) considerations now being the lens through which occupancy, development, investment and financing decisions are taken. A “greenium” or green premium will be paid for assets with the best green credentials, she said.
According to CBRE, this emphasis on sustainability will become evident this year in the office sector with a greater divergence in performance and price between main and secondary buildings. This ‘flight to quality’ will mean that occupants and investors will favor new and more sustainable buildings, as well as an increase in the number of existing buildings adapted for reuse as opposed to demolition and replacement. In terms of office occupancy, CBRE says that while they expect further improvement over the next few months, it will likely be until 2023 before activity returns to pre-pandemic levels.
Industrial & Logistics
Proving to be the star of the Irish commercial property market in 2021 with some 265,000m² of occupied space in Dublin, the industrial and logistics sector is on track for another strong performance this year. This success will come at a price though, with rising construction costs and site value inflation expected to mean rents will top €118 per square meter in the Dublin market before the end of the year. However, with strong demand and low vacancy rates, CBRE says developers will be willing to take more risk and launch speculative industrial and logistics projects.
While the report notes that a number of new brands are set to open their first Irish stores in 2022, the recovery in the retail market will be somewhat tempered by supply chain disruptions and inflationary pressures which are causing problems for retailers. retailers and consumers.
With no immediate or obvious solution to the housing crisis in sight, the report says institutional investors will continue to seek opportunities to develop housing for the private rental sector (PRS) market in Dublin. Their interest is also likely to extend to major provincial towns across the country, although CBRE says viability will remain compromised outside of Dublin’s central market.
While the report notes that investors in PRS are accustomed to regulation in all the markets in which they operate, they are “frustrated” by what it calls “the sheer number of interventions” that have been made in the market. Irish in recent years. In this regard, CBRE states “it is essential that further government intervention in this sector is now reduced to avoid this abundance of capital opting for alternative investment sectors or jurisdictions”.
The authors of the report also warn that the Central Bank’s proposed restrictions on the level of leverage within Irish-domiciled regulated funds have the potential “to adversely impact the pool of capital targeting multi-family opportunities on the Irish market”.
Land to build
Regarding the market outlook for land for development, the report’s authors expect to see stiff competition this year for well-located sites, especially those with existing planning permission and access. supporting infrastructure. Projects that offer developers the chance to retrofit older stock and bring buildings up to the highest ESG standards will also be highly sought after, says CBRE.
After recording 18 disposals for a combined value of €383 million in 2021, the continued recovery in commercial performance and the emergence of new investors should result in the disposal of several hotel portfolios this year. CBRE says it expects some $500 million in hotel deals to close in 2022. Few of them will be in trouble, CBRE says, noting that “most sale decisions will be influenced by lifestyle reasons or by owners making the decision to retire”.
After one of its busiest years on record, with €600 million invested in various assets, the healthcare sector is on track to see a huge increase in development activity in 2022. And with levels significant amounts of pent-up investor demand, CBRE says it expects this to be a seller’s market with few assets available for purchase. Nursing homes, especially those that are “fully sustainable”, will be in high demand, say the report’s authors.
Beyond the capital, CBRE says the supply of high-quality new development that has sprung up in Cork City makes it attractive to investors looking for prime, sustainable stock.
While the report’s authors note that investors are likely to target office investment opportunities, they expect to see good demand across all sectors, including multi-family, hotel and student housing, as well as industrial and logistics assets.