2015: Prospects for the year ahead
What would you like to see happening in the commercial market in 2015? The priority for 2015 has to be construction activity in the Irish office market.
The supply of Grade A accommodation, and in particular large floor plates, is now critically low across all our regional centres. Currently, there is only one unit greater than 5,000sq m in size available in Dublin, the shortage is more pronounced in the regions with no Grade A units greater than 5,000sq m available in Cork, Limerick or Galway.
It is vital that construction is prioritised if we are to remain a competitive location for FDI investment.
2014 was a record-breaking year for the investment property market. Activity was driven by large portfolios and loan sales. It would be beneficial to see more stock in the €5-€10 million category to cater for demand from the large number of QUAIFs, private family offices and indeed domestic demand.Finally, it would be great to see new entrants in the market offering debt financing to allow greater activity throughout the market.
Where are the best opportunities for investors? I believe that 2015 has to be the year for the retail market. The retail sector was worst hit by the downturn with capital values down 72 per cent from peak.
The market has turned but there is still capacity for growth particularly in terms of rental values.
With the return to economic growth and the uplift in consumer spending positively impacting revenue in the hospitality sector, 2015 should also see an uplift in activity in the hotel and leisure sector.
Many of such assets are still trading wellbelow replacement costs and there is no doubt efficiencies can be brought into the operation of such entities with the right operators.
Finally, there are still ample opportunities in our regional centres outside Dublin, and astute investors with early mover advantage will see a good return from such investment. What will happen when the overseas money runs out? There is certainly no sign that the international appetite for Irish commercial property is diminishing.
That said, there is a change in the profile of the investors, from the initial higher-risk opportunity funds with a shorter investment horizon towards those with a longer term perspective, such as REEF, DECA, Realis, M&G and Standard Life amongst others.
Equally positive is the fact that a lot of the funds that came to Ireland during the initial recovery period have now set up large platforms here and therefore look set to remain here for some time.
Finally, I was heartened during a recent trip to the US to meet 16 new funds interested in investing in Ireland, which is a positive when one is looking towards the next phase of the Irish recovery.
Will property values continue to rise, if so, by how much? I believe yes, but the rate of growth will moderate.
As 2014 was the year for CBD space, 2015 will see activity filter down to the suburban office market.
I would also expect to see greater value growth in the wider retail and hospitality sector.
Finally, just as Dublin has dominated during the recovery to date, the other regional centres will now benefit from an uplift in activity and values.
Aidan Gavin is managing director of DTZ Sherry FitzGerald