Watching and waiting a common theme in property market

Tommy Barke reports that doubt stalks investors as the impact of Covid-19 has yet to be determined.

Social Distancing instructions on a building construction site on George's Street Dublin. Photo: Leah Farrell/RollingNews.ie
Social Distancing instructions on a building construction site on George's Street Dublin. Photo: Leah Farrell/RollingNews.ie

What a difference a year’s first quarter will make?

A commercial property market report for Cork for the first quarter (Q1 of 2020) came out from Lisney yesterday showing a steady start to the year: just how different will the next one, the second quarter equivalent, read after the end of June? None too pretty, it’s safe to assume.

The pandemic that is Covid-19 has grounded continents, countries, economies and business sectors to a shuddering halt and the pace at which the various moving (and, frozen) parts re-engage and resuscitate is an open question.

Clearly, the many and various business Q1 reports currently issuing will stand as testament to the ‘BC’ era, Before Covid-19.

In Cork, the most active visible sector for a year and more has been office construction, with 46,000sq m or nearly half a million sq ft on the way, much of it close to completion.

Plus, there’s a further 155,000sq m in the pipeline, most of it through the planning process. That is three times what is coming out the other end right now. Activity levels were described as "healthy" with office vacancy rates dropping to 9.6%.

Not all of that bulk of 155,000sq m was set to be built straightaway, thankfully. Now, new starts will be brave until some stability returns.

Construction has been affected by the Covid-19 outbreak like every sector of the Irish economy.
Construction has been affected by the Covid-19 outbreak like every sector of the Irish economy.

Lisney director Edward Hanafin said take-up of the new office areas was good in the first quarter, up on previous quarters, with over 8,000sq m taken, in 11 deals, and with 80% of that coming from the tech sector: there had been a dip in mid-2019 after a strong 2018.

Now however, he acknowledges that “it’s likely that there will be a pause in demand from foreign direct investment companies due to global Covid-19 travel restrictions.

“Additionally, many companies will defer any decisionmaking on property acquisitions until there is more certainty around the containment of Covid-19.”

Furthermore, while elements of the construction sector are expected to be among the first in the economy to return to work, subject to stringent safety/social distancing provisions, he accepts “the current temporary closure of construction sites will delay building completion dates and have a knock-on effect for pre-lets and tenants’ expected occupation dates.

Where rent review dates line-up with the crisis, there is likely to be some form of discount to reflect the suggestion that a hypothetical tenant would sign a lease in the midst of a global pandemic. However, given that this crisis is still unfolding, there is as yet no evidence of the impact.

Finance for property will be harder to secure “as there will be greater demands on international sources of funding, and property may be viewed as having an increased risk. As a result, it may be difficult to get finance for speculative development,” he says.

On the property investment front, Irish investment market turnover in the first quarter of 2020 was almost €675m, and just 1.2% of this, or €8.25m, related to Cork and was down on previous quarters.

Watching and waiting a common theme in property market

The largest deal was the sale of an Aldi investment to French fund Corum for €5.6m, while the medical centre at Old Quarter, Ballincollig with pharmacy and eight other tenants sold for €1.75m: two retail deals are sale agreed in the city centre, at 86, North Main Street, Cork with a mixed use property guided at €1.295m, and two retail units at 19 and 20 Princes Street are sale agreed, having guided at €1.05m.

Watching and waiting a common theme in property market

On the industrial front, the first quarter was quiet, marked by just one lease deal, and most activity was at Blarney Business Park, where developers JCD Group are building new warehousing with planning now secured for 200,00sq ft more (Pictured above).

According to Lisney, “demand for prime well-located warehouse industrial accommodation had been steady in the early part of the first quarter, before the emergence of Covid-19. That has significantly impacted activity in the industrial sector as many companies are adopting 'a wait-and-see approach' and are deferring making decisions on property.”

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