What would you like to see happening in the commercial property market in 2015? The key point for property next year will be for banks to pick up lending activity and in particular, to start funding development to alleviate supply shortages in offices and residential.
Over the next 12 months, I would also like to see the property recovery move into its next phase: the “work out of the work out”. In the past three years, €6.5 billion of Irish property has been purchased through direct asset sales and well over €20 billion traded in loans. A large amount of this has moved into temporary or opportunistic hands, and as the value recovery continues, it is likely that these investors will be looking to re-sell their purchases. I would hope that these will now start to work its way back into the hands of “traditional” property owners, who have a longer-term objective for Ireland.
Where are the best opportunities for investors? There remains a significant volume of assets still to be brought to the market from banks/NAMA deleveraging. Although these are across a mix of locations, sectors and quality, there are still opportunities to purchase assets with strong returns and future growth potential.
I expect retail will be the strongest-performing asset class in 2015. We have seen a number of shopping centre sales in the last six months, but this is only scratching the surface of what is expected to trade in the next 12 months. The demand from investors for retail as an asset class, and the further recovery in occupier markets will drive competition in pricing.
What will happen when the overseas money runs out? There is no indication that overseas money is running out. Although we may start to see some previously active purchasers exit the market, it is likely that there will be new core investors looking for opportunities in Ireland. These investors have a lower cost of capital and will seek prime assets.
However, there will come a point when overseas investor activity will reduce. This is unlikely to happen next year, but when they do exit, I would hope that banks will have resumed to “normal” activity, which will support domestic purchasers. These domestic investors, teamed with Irish institutions and REITs, should have the capability and capacity to deal with this next phase in the property cycle.
Will property values continue to rise and, if so, by how much? We expect property values will continue to rise, but not at the pace we have seen in the past 12 months. Capital values remain 56 per cent below peak levels, so there is further opportunity for growth.
Supply issues for the office and industrial sectors is likely to drive further rental growth, and this will underpin future capital growth. Our latest forecasts show that average rental growth per annum for the next five years in these sectors is ahead of any other European capital city. John Moran is managing director of JLL
