New research from global property advisor CBRE shows that when it comes to deciding where to shop, Irish consumers look to have their basic needs of value, cleanliness and security met first above all else. This bodes well for smaller shopping centres aiming to compete with the larger regional centre alternatives, who with a maintained level of investment can meet the most required needs of Irish consumers.
The new report which surveyed 1,000 consumers in Ireland, as part of a European wide study, reveals that while 51% of Irish consumers favour shopping in large purpose-built shopping centres, a sizeable 48% of consumers prefer shopping in smaller centres or high streets.
The survey also highlights that parking and the offer of free parking in a location can be particularly influential for the Irish consumer, who on average ranks these more important than the range of shops on offer. once these basic needs have been met, it is the provision of retailers and the presence of specific retailers along with suitable services such as banks, that Irish consumers look for in their shopping location.
The Irish consumer juggles a range of channels in the research and buying process of a non-food item, and while technology is used extensively to search and check the prices and reviews of products, close to 90% of Irish consumers prefer to visit a shopping centre or high street store when buying a product.
There has been much discussion recently about pricing, particularly in the context of the Dublin commercial property market, considering the weight of capital chasing investment opportunities and the extent to which prime yields have contracted over the last 12 month period
The reality is that assessing the appropriateness of a yield or a return from property investment is a function of market conditions at a particular point in time and is largely influenced by factors such as the availability and cost of funding at that time and the returns being achieved from other forms of investment or from property in other jurisdictions.
In the current climate, many long term investors find property attractively priced relative to other investment alternatives such as Government bonds or bank deposits, particularly considering the rental growth and future development potential associated with many property investments.
The fact that economic prospects in Ireland are considerably better than in many other European countries at this juncture and the relative strength of our occupier markets in comparison to other locations could result in some investors justifying paying higher pricing for Irish assets.
Over 50% of commercial property investment in Ireland is now emanating from international investors who are seeking investment opportunities across a range of markets.
Instead of focussing on the fact that Irish property yields are now at or close to their long-term average and focussing on the potential for over-pricing, investors should instead focus attention on what yields are being achieved in other competing locations and from other forms of investment as that will result in more meaningful analysis.
2014 will see the return of the crane to the Dublin landscape as the next wave of office development in the capital commences.
Prime office rents in Dublin 2/4 are set to increase by a further 15% during 2014 to reach approximately €435 per square metre or €40 per square foot by year-end having increased by more than 25% during 2013.
In addition to some new development an increase in the number of office refurbishment and retrofitting projects is expected this year.
Stronger volumes of activity are expected in the Irish retail property market over the course of the next 12 months.
In addition to existing retailers expanding and relocating, several new retailers are expected to make their Irish debut this year as international retailers increasingly focus attention on Ireland.
While prime high streets and major shopping centres accounted for the greatest proportion of activity in the retail property market last year, this momentum is expected to filter down to secondary streets and provincial locations to some degree during 2014.
Some rental growth expected to re-emerge in the Irish retail market for the first time in more than six years during 2014, albeit limited to certain prime high streets and shopping centres for the foreseeable future.
Following several years of no new development, this year will see some selective retail development coming on stream around the country, primarily in the form of additional phases in existing schemes.
There is a likelihood of matching, if not exceeding, the record level of transactional activity that occurred in the Dublin industrial and logistics sector in 2013 over the course of the next 12 months considering the volume of demand to purchase and rent prime buildings in this sector.
Now that we are entering a phase of stronger economic growth, some property investors are expected to selectively move up the risk curve from core real estate to secondary properties in an effort to boost returns.
An increasing number of global investors who lack local market knowledge and don’t have the management resources to manage Irish assets directly will look for alternatives to direct sole ownership such as partnerships and joint ventures as well as indirect investment through REIT’s and property funds.
Following the establishment of two Irish REIT’s last year, other Irish REIT vehicles are expected to emerge in 2014 although the Irish market is too small to sustain a large number. In addition to new REIT vehicles being established, 2014 could see some existing Irish entities converting to REIT structures and the existing Irish REIT’s undertaking additional rounds of fundraising.
Some significant land parcels are likely to be offered for sale during 2014, some of which will form part of larger mixed-used portfolios. Some land that originally formed part of loan sales during 2012 and 2013 are expected to be offered for sale this year.
2014 will see a notable increase in the volume of house building in the Dublin market, albeit from a very low base. This in turn will boost demand for small residential zoned sites, particularly those with planning for between 50 and 100 housing units. There is also likely to be strong demand for office sites in the capital.
Although the majority of land sales over the last 12 months have been acquired by cash purchasers, there will now be pressure on banks to provide development finance to support the beginning of the next development cycle. Demand from private equity houses to fund or partner with local developers on development projects will increase.
Outside of Dublin, a significant amount of provincial land will be traded in 2014 although buyers are likely to comprise local purchasers in the main. Only lands that are appropriately priced will attract buyers however with little or no premium payable for the benefit of zoning or planning permission.
A number of Dublin city centre hotel properties are likely to be offered for sale during 2014 as well as some good quality provincial hotels. Demand in this sector will continue to be dominated by overseas purchasers. Many of the buyers that purchased Irish hotel properties over the last number of years are likely to transact again in order to increase their exposure to the Irish market while a number of new entrants from jurisdictions that have not yet invested in Ireland are expected to emerge.
The largest proportion of respondents to CBRE’s annual survey of the Top 1,000 Chief Executives in Ireland (53%) believe that the economy will grow by up to 1% next year while a further 15% are more optimistic, believing that a growth rate of between 1% and 2% is achievable. None of the Top 1,000 chief executives who responded believe that growth of more than 2% will be achieved in 2013. Almost one third of respondents expect the Irish economy to decline next year.
18% of respondents expect Eurozone base interest rates to fall slightly in 2013 while the largest proportion (64%) believe Eurozone rates will remain at current levels. 18% of respondents expect interest rates in the Eurozone to increase next year. In contrast, 47% of Ireland’s chief executives believe that UK base interest rates will remain at current levels in 2013 while 53% expect US base interest rates to remain stable at current levels next year.
47% of respondents to CBRE’s annual survey believe that the availability of bank funding for Irish businesses and households will rise next year. A further 41% of respondents expect lending to remain at current levels next year while 12% expect Irish bank funding to deteriorate further next year.
Significant improvement in transactional activity in the Irish investment market in the first six months of 2013
There was a significant improvement in transactional activity in the Irish investment market during the first half of 2013. In total, there were 34 investment transactions of more than €1 million in value completed in the six month period. In total, €603 million was invested in the first half of 2013, compared to a full year spend of €545 million in 35 transactions in the entire year last year
Commercial property values showing signs of improvement as yields harden
Having reached a floor last year, prime Irish commercial property values improved in the first half of 2013 due to rental growth expectations and the weight of money chasing prime opportunities
Overseas investors continuing to focus on prime opportunities in Dublin
Overseas investors are still primarily focussed on prime investment opportunities in Dublin although some are beginning to relax their criteria somewhat due to a scarcity of prime product being offered for sale. Domestic cash investors are most dominant outside of the capital, purchasing investment properties for double digit yields in some cases.
Prime yields beginning to stabilise
Prime yields have improved faster than anticipated during the first six months of 2013. Prime office yields were in the order of 6.25% at the mid-year point with further yield compression anticipated in the second half of the year. Prime retail yields were in the order of 5.75% while prime industrial yields were in the order of 8.75%.