What effect will Brexit and the proposed tax changes have on the commercial property market?
To date there has been no direct impact on the investment market. There is no evidence of any investment deals collapsing and equally, we have not seen a surge of investors turn to Ireland in the past three months, although sentiment has improved around the occupier market. At the beginning of 2016, we forecast that total volumes for the year were likely to be close to €4 billion, and we are on target to meet this. These volumes are strong for a market of Dublin's size and comparable to peak levels. Interest in the Irish investment market remains steady and balanced between domestic and overseas buyers with a continuing number of new entrants to the market.
However, the announcement of the change in tax legislation for previously tax-exempt investment funds will have some negative impact on demand from overseas investors. A number of transactions have already collapsed due to the changes. What is extremely disappointing is that the Government has chosen to change the rules, which provided the market with the necessary liquidity, long before market recovery and functioning banking are complete. Equally, it sends a dangerous message to overseas investors that, as a country, we don’t keep our promises and it has already done damage to our international reputation.
Is there sufficient bank funding available to allow the owners of large portfolios to offload individual properties next year?
The volume of funding from Irish sources is insufficient to support a market much over €1 billion. Prime assets are still able to attract overseas money and we expect this to continue. The situation for secondary assets and development is more precarious (and expensive).
Where are the best investment opportunities at this stage?
The industrial and logistics sector in Dublin offers a strong opportunity for investors. Rents are under upwards pressure given supply constraints for prime space and there are opportunities via investment or development.
Depending on the risk profile of the investor, there are still opportunities for prime city centre office and retail investments, as long as the investor is satisfied with a lower return profile. Prime suburban office investment also has potential, with further rental growth likely in some of Dublin’s prime suburban office parks.
Assets that remain valued below replacement cost also have the potential to be a solid investment, as long as they are in acceptable locations.
One thing to watch out for in 2017?
My main piece of advice for 2017 is to proceed with caution. There is volatility, both economic and political, and this directly affects the property sector. There is uncertainty, particularly as a result of Brexit and the Trump election, which markets do not like. Any fundamental changes that cause global economic shifts, would directly affect Ireland’s economy and therefore its property markets. Expect the unexpected.
John Moran is managing director and head of investment of JLL Ireland
