The Society’s annual review of the commercial property sector is positive, with predictions for growth across the board.

Prime office and retail rents in Dublin are expected to rise by 7% and 8%, respectively, during 2017, while residential development land values in the capital are expected to rise by 15%.
In the rest of the country, increases in prime office rents of around 4% are predicted, while retail rents are expected to increase by 8% in Leinster (excluding Dublin) and 5% in Connacht/Ulster, but by just 1% in Munster.
These are the findings of the Society of Chartered Surveyors Ireland (SCSI) Commercial Property Review and Outlook for 2017. This annual report is now regarded as a vital insight into developments in the sector. Commissioned by the SCSI, Future Analytics Consulting surveyed over 380 estate agents and Chartered Surveyors from all over the country to get the best possible overview of commercial and residential property in 2016, as well as predictions for the year to come. Overall, the commercial property sector performed strongly in 2016, with growth recorded across all sectors, although the rate of this growth was more moderate than that recorded in 2015.
SCSI President Claire Solon said that while it is still premature to accurately predict the impact of Brexit and Donald Trump’s election in the US on the commercial property sector here, the results of the survey show that a degree of uncertainty is already apparent: “The ability of the investment market to weather many potential storms was a highlight of 2016, and it’s clear that Ireland is viewed as a safe harbour for international funds in the wake of numerous uncertainties. In addition to international events, domestic issues such as solving the housing crisis or changes in the taxation structure for Section 110s will all impact on investment returns and capital growth expectations. The market likes certainty”.

Office sector
Chartered Surveyors forecast a sustained but more moderate growth rate in office rental prices in 2017, with an anticipated rental increase of 7% in Prime Grade A in the Dublin region and 6% growth for most other office types. The anticipated level of growth outside Dublin is more moderate, with a predicted increase of 4% for both Prime Grade A and Prime 3rd Generation office rents in both the Munster and Connacht/Ulster regions.
The SCSI survey found that Prime Grade A rents in the Dublin region now average €612 per sqm, representing an increase of 9% on 2015, and with net yields of 4.5%.
In the Munster region, Chartered Surveyors reported a strong increase in growth in Prime Grade A offices as they achieved an average of €243 per sqm, representing an increase of 10% on 2015. Prime Grade A office rents increased marginally in the Rest of Leinster to €136 per sqm, while in Connacht/Ulster the rate is €148. Office take-up was led by the computer and high-tech sectors, who had approximately one- third of all take-ups, followed by business services, which accounted for approximately 17%, and financial services tenants, which accounted for around 14%.
Claire Solon said that while the predicted increases for 2017 signified continuing market confidence, the survey identified several challenges: “While vacancy rates in Dublin are at extremely low levels, this brings its own challenges. Surveyors in the city highlighted rising rent values and shortages of suitable office space in the capital. Additionally, there are huge concerns over the continuing undersupply of new housing and its potential impacts on the regions’ future competitiveness and ability to attract new inward investment. Surveyors in the Rest of Leinster reported an over-supply of office units in the region, while in Munster there is an under-supply of modern office space with parking. There are different challenges in the various sub-markets within Ireland”.

In the retail sector, Prime Retail Zone A units in Dublin achieved rental prices of €5,876 per sqm in 2016, representing an increase of 12% on 2015. Rents for these units are anticipated to increase by 7% over the coming year while growth in all other retail types is forecast to be more moderate, at 4-5%.
In the Rest of Leinster, surveyors forecast a strong level of growth in
the retail sector, in particular shopping centre rents, which are forecast to increase by 8%, while in the Connacht/Ulster region, a 5% increase is forecast for prime city rents. More moderate growth is anticipated for retail rents in Munster.
“In Dublin a shortage of retail units and unsuitably sized floorplates are two primary challenges, along with rising rents. In the rest of the country two problems identified were over-supply and excessive rates, the latter being raised as an issue particularly in Munster. Another area highlighted is cross-border retail leakage, which is an increasing concern to the retail sector in the border counties,” Ms Solon said.

The industrial sector proved the strongest performing commercial property sector in 2016, outperforming both the office and retail sectors. The survey found that this was set to continue in 2017, as favourable capital and rental values are maintained. In Dublin, rental increases of between 8% and 9% in prime rents are predicted, with an increase of 7% for secondary rents. More moderate increases of 5% and 4% are forecast for the Rest of Leinster and Munster, respectively, while growth rates in Connacht/Ulster will remain the lowest, at 2.5%. “In Dublin and Leinster surveyors drew attention to the lack of suitable finance and the sale of industrial units at prices below new build costs, which is impacting the supply of new units throughout the region. In the Munster region the over-supply of units is an ongoing issue, while in Connacht/Ulster the need for improved services and infrastructure is considered key,” Ms Solon commented.

Development land
Growth in development land values was recorded across all sectors in the Dublin region in 2016. The largest value growth was recorded in the land value of office development land, increasing by almost 17%, followed closely by residential development land with 14.3% growth.
The highest level of growth in residential land was recorded in the Rest of Leinster Region, increasing from 12% in 2015 to 16% in 2016. Similarly, the Munster region recorded increases of 15%.
In all regions, surveyors forecast the highest growth in development land values to occur in the residential sector. In Dublin, this land type is expected to rise by 15% in 2017, followed by office development at 12%.
While growth of 10-11% is forecast for residential development land in the other regions, this figure drops to 3% or under for office development land.

Main survey findings
• Prime office and retail rents in Dublin are expected to rise by 7% and 8%, respectively, during 2017.
• Residential development land values in Dublin are expected to rise by 15%.
• The highest level of growth in residential land was recorded in the Rest of Leinster Region, increasing from 12% in 2015 to 16% in 2016.
• The industrial sector proved the strongest performing commercial property sector in 2016, outperforming both the office and retail sectors.
• Grafton Street in Dublin remains Ireland’s most expensive street, with rental growth of 4.8% in the first half of 2016.

The Docklands area remains in high demand with a number of investments made during the course of the year including:
• €121 million – Number 2 Grand Canal Square (Irish Life);
• €233 million – Numbers 4 and 5 Grand Canal Square (Union Investment);
• €93.5 million – Number 1 Grand Canal Square (IPUT); and,
• €108 million – 98 Sir John Rogerson’s Quay (Kennedy Wilson.

Edward McAuley

Edward McAuley

SCSI Professional Groups and Regional Manager