CBRE: Hospitality and retail will be slow to recover from Covid-19

The Irish property market will come out of the Covid-19 pandemic in uneven stages, say international consultants CBRE.

The Irish property market will come out of the Covid-19 pandemic in uneven stages, with sectors most affected by occupational demand and high volumes of social interaction such as offices, hospitality and retail slowest to recover: investment in quality assets will be the first sector to come back, say international consultants CBRE.

According to a bimonthly report issued today, and in a best case scenario, CBRE suggest that “provided the outbreak is brought under control in a reasonable timeframe and we follow the trajectory witnessed in Asia, our house view at this juncture is for a rebound in activity in the Irish commercial real estate sector during the second half of 2020.”

That start of recovery will be led the investment sector “where there is considerable investor equity in a position to deploy once assets are released for sale in due course. It will however take longer for occupational markets to rebound,” says director and Head of Research Marie Hunt.

She accepts the depth and duration of the pandemic “will ultimately dictate the extent to which the real estate market is impacted, and it is clear that in every sector of the market, the ‘new normal’ will be a very different place indeed”.

A number of significant deals, especially development land ones, have been put on a ‘wait and see’ hold for the current duration, such as the planned €110m sale of the former DIT campus at Aungier Street.

Values are likely to be driven downwards, in the short to medium term, and while Irish banks are “relatively well capitalised going into this crisis and in a position to offer a certain level of forbearance, those sites that are funded by alternative lenders are therefore likely to be most vulnerable if this crisis continues for a considerable period of time. This could lead to an increase in the number of sites being offered for sale in the second half of the year,” Ms Hunt predicts.

Addressing the FF/FG Programme for Government proposal to hold a referendum on capping land prices, CBRE comment that such a move “would prove difficult, if not impossible, to implement and would likely be challenged on constitutional grounds.”

While recent weeks have seen some notable deals proceed, such as the €65m sale and leaseback sale of Dublin’s 187-bed Dalata Clayton Charlemont Hotel to German investor DEKA Immobilien was "a welcome boost to the market, signalling underlying confidence in the hotel sector despite the current situation. ”

However, on the wider hotel front, CBRE say there is “stronger demand for hotel development projects than for standing stock at present, which demonstrates the resilient nature of the hotel sector as well as investor and hotelier confidence of a return to strong trading conditions in due course.”

They believe that domestic business is likely to prove supportive until such time as international tourism and business activity improves once travel restrictions are lifted.

While accepting a ‘new normal’ will take time to establish in the retail sector, where landlord, tenant and financier forebearance will be needed on rents, today’s CBRE report predicts a “flight to quality” in core assets.

It notes that investor demand for Irish assets and investments “remains strong and there is still considerable liquidity, meaning that when we are through this crisis and sales campaigns recommence, market activity is expected to rebound quickly in this particular sector of the market.”

CBRE suggest “the focus for the foreseeable future will be on preparing assets for sale once liquidity returns with particularly strong appetite anticipated for office, industrial and residential investments.”