What effects will Brexit and the proposed tax changes have on the commercial property market?
The effects of Brexit and tax changes are somewhat unknown and it’s still too early to call it. On the Brexit side, we are seeing an increase in demand for office property, with financial occupiers and their advisers seeking office space as part of a relocation from London. It may be that there will also be some spillover to the residential market, with further demand for high-end homes on a sale or rental basis.
In relation to the tax changes, they are distinctly unhelpful and have already deterred overseas investment in Ireland, particularly from North American investors. While there's already been an immediate impact as a result of the changes, there is perhaps a more damaging message of interference by the Government, which creates uncertainty and is bad for the market.
Is there sufficient bank funding available to allow the owners of large portfolios to offload individual properties next year?
Property outlook 2017: expect investor appetite for family apartments, student accommodation and healthcare
Strong supply to ease pressure in Dublin office market
Property outlook 2017: Prime core office and retail market still attractive
Property outlook 2017: volatile backdrop means investors should proceed with caution
Traditional funding for property investment, and particularly development, is somewhat limited in the Irish market due to the small size of our market. While the main pillar banks are lending, they have limited resources, and we are seeing some overseas banks providing funding, albeit in a limited number of cases. However, as loan portfolios are sold and worked through, many borrowers have worked with and will continue to work with non-traditional debt providers, which means, in some instances, kicking an expensive can down the road. There is probably sufficient depth in that market to finance the properties that come to the market, but loan-to-value ratios and the cost of such finance may negatively affect pricing.
Where are the best investment opportunities at this stage?
For me, well-let city-centre office properties are hard to beat. There is a view, which I share, that office rents are nearing their peak, and this may deter some investors. However, the quality of international occupiers is undeniable and, as a result of this, tenant default is not a feature of this sector, thus reducing the risk when compared with other sectors. Aside from that, there are good opportunities in the industrial sector and in city-centre premises capable of providing food and beverage offerings.
One thing to watch out for in 2017?
Over 2017 I’d expect that some of the overseas investors, particularly those who don’t have platforms on the ground, will look to exit the market. It’s likely many of these trades will be “off-market”. If this comes to pass, some good-quality property will be offered, but the pool of buyers may be limited. Therefore, I’d expect to see a knock-on shift in yields that are likely to move out, which is not unexpected and has been flagged for some time. Conversely, there’ll be an increased interest from local and international buyers seeking prime multi-family investments, and this is definitely a growth sector.
James Nugent is chairman of Lisney
