With the Irish economy making a robust recovery and a strong 2022 in prospect, commercial real estate will continue in growth mode, with significant new opportunity for investors, the 2022 Outlook from BNP Paribas Real Estate Ireland (BNPPRE) suggests.
There is value in many investment sectors, and high relative returns, we’re told.
Residential and logistics will again drive the demand side, but the smart money will look to retail apparently, with the overall market very much ‘on the up’, thanks to good availability of properties for sale, as well as continuing low interest rates which make property returns more attractive.
On the investment front, Ireland continues to offer value at current pricing, relative to European peers, based on yield spreads over 10-year Government bonds.
Kenneth Rouse, Managing Director and Head of Capital Markets at BNPPRE says that the ‘smart money’ is already looking at retail opportunities, following the Covid shake-up.
“There is over €2bn of income producing property available to buy in Ireland around now, and, although the Euro area inflation-surge is expected to be stronger and longer-lasting than previously thought, the ECB says rate increases are very unlikely next year”.
Investors will continue to seek-out logistics and PRS opportunities in the main, the investment advisor says, although PRS rental growth expectations may moderate, reflecting a more balanced market.
With significant space now under construction to meet logistics demand, the current trickle of new supply will strengthen to a flow in 2022, Rouse also predicts, with further rental growth for this sector.
“The market will comfortably digest the additional space, given current low vacancy and the fact that strong goods consumption is expected to continue. Occupier demand is going to follow the consumer economy, irrespective of the on-line and traditional retail balance”.
Predictions for the troubled Dublin office market include vacancy rates edging-up further next year, according to Keith O’Neill, BNPPRE Head of Office Agency.
Take-up is recovering after the weakest quarter ever in Q1 2021, but more tenant-friendly terms are likely to remain in both 2022 and 2023, O’Neill says.
2021 was the strongest year for office completions since 2008, and there is more to come in 2022. Non-prime rents will however have eased by around 10% on pre-pandemic rates.
“New high quality office stock will remain a valued asset class for investors, with new job creation, office-based employment returning, and the reappearance of international occupiers”.
Eoin Feeney, Head of Retail Agency at BNP Paribas Real Estate, says retail will continue to rebound in line with consumer recovery.
Consumer spending may moderate, as the initial snap-back washes through, but grocery, neighbourhood stores and retail parks will continue to trade well, with rents remaining resilient, he believes.
“Ireland and in particular Dublin will continue to be an important option for International retailers. New entrants to the market will be attracted by the demographic structure and strong economy. While High Street and prime shopping centre vacancy rates will drop significantly, it is too early to call a recovery in rents, as retailers continue to rebuild revenue.”
With a very strong pipeline supply, particularly in Dublin apartments, residential rent inflation and the House Price Index will reflect a more balanced market in 2022 and 2023, according to Dr John McCartney, BNPPRE Director and Head of Research.
Population growth has more than halved since its early 2019 peak, and this decline is expected to continue next year, easing the demand crisis somewhat.
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