Looking at the national economic position there will obviously be inequalities in some areas: however, from an overall standpoint, Ireland is in a much different place than it was a few short years ago. Unemployment is down to a level of 10.7%, continuing to fall at a steady rate; we have improved public finances, an optimistic business sentiment throughout the country and a substantial increase in the total construction activity, all pointing to a much brighter economic environment going forward.
Obviously the uncertainties in the euro area are still a concern but the underlining trend for the Irish economy appears to be a steady growth period over the coming years.
The property industry has mirrored the national outlook, with certain sectors experiencing records in terms of transactions and overall activity levels. In contrast, mainstream media is dominated by the social issues of homelessness, rising domestic rents and the lack of social housing caused by construction inactivity over the last seven years.
Unfortunately we do have all the ingredients of a housing crisis in these sectors and are likely to witness increasing rental demand against the backdrop of a declining supply and Government inability to provide any meaningful levels of public housing up to 2017. There is a need for a ‘Partnership’ solution to these crisis sectors of the market, though no immediate solution is to hand.
The commercial sector of the market has shown considerable improvement, doubling 2013 and dominated by large scale transactions with a predominant focus on the Dublin and urban areas. Total commercial activity is likely to exceed €5.5 billion.
Leading the way in terms of acquisitions were the three REITS, Green, Hibernian and Ires, while other high profile investors included Blackstone, IPUT, Marathon and Verde. On the disposal side, we see the continued extraction from the Irish property banking sector by RBS (Ulster Bank), Lloyds (BOSI) and Deutsche Bank while NAMA and receivers have also been very active in their disposal process through loan book sales, portfolio sales and the disposal of individual properties.
There has been unprecedented levels of investor interest in quality Irish property, with a notable trend of parties looking to acquire large blocks or portfolios of properties. Within the industry, we see this as ‘a market within a market’: it has kept us busy, but is not the workings of a normal property market.
There have been numerous large scale loan disposals by the banks and NAMA where many borrowers have had their loans effectively sold to new investors based on the current values of the properties. Although the loans remain in place, borrowers are now dealing with third party investors who are only concerned with the current and future values of the properties.
For the borrowers, there are positives and negatives associated with this process as they may get away from their initial loan liabilities - but they are dealing with investors who look at the short to medium term to make a return on their acquisition. The inevitable outcome will either be a refinancing of the asset by the borrower or they lose control and the property is disposed of in the open market.
In terms of the domestic Cork market there has been a return to activity with more transactions in 2014 than in previous years. Small businesses (SME) in Cork are exhibiting improved confidence sentiment across the market place, with strong indications of increased staff levels, but these positive sentiments haven’t yet translated into meaningful levels of transaction.
The market remains challenged but we expect a continued upturn through 2015. The office sector has been the most active in terms of high-profile activity on the back of the continued success of the IDA in attracting strong FDI investment into Ireland.
Number 1 Albert Quay is the most significant office development to come on stream in Cork City Centre in over 10 years, with John Cleary Developments and BAM currently on site to provide 175,000 sq ft of high quality third generation office space by the end of January 2016. Already committed to the building are Tyco (75,000 sq ft) and PWC (15,000 sq ft) with strong interest from other parties. Based on office uptake during 2013 and 2014 we would expect 1 Albert Quay to be fully let before the end of 2015. The same developer acquired the Central Plaza 9.25 acre office development site in Mahon, with planning for 300,000 sq ft of offices and construction’s due to commence in early 2015.
Other active FDIs in this sector during the year included VM Ware, Apple, Voxpro, Eli Lily and Amazon who have all been on recruitment drives throughout 2014. With annual office requirements in Cork at around 250,000-300,000 sq ft and based on the current level of activity, there will be a lack of good quality space available to potential occupiers from 2016 onwards.
Although planning does exist in schemes such as EastGate, Cork Airport Business Park, Ballincollig and Mahon, many of these are unlikely to commence on a speculative basis without the comfort of some pre- letting. This is a challenge for all cities outside of Dublin and one which may require creative stimulus solutions between developers, the IDA and local government.
The abolition of the CGT exemption at the end of 2014 provided an injection and transaction boost to the investment market. In some cases we have seen vendors prepared to bid over the asking price for these assets as they believe the CGT exemption will be of a greater economic benefit in seven years time.
Development land (largely controlled by NAMA) has exhibited a very strong demand with large numbers of builders/investors looking to get back to building houses, but additional costs of regulation have been a deterrent. Unless some compromise is reached, it’s likely that demand will outweigh supply and we’ll continue to see increases in property values.
Positives in Cork are 1 Albert Quay and the redevelopment of Páirc Uí Chaoimh, but there is frustration around the process of selecting an Events Centre site. With a possible funding gap neither of the two proposed sites may be viable from a development perspective. If that is the case the State and NAMA should get involved to guarantee the commencement of the Event Centre for Cork during 2015.
Peter O’Flynn is a director of DTZ, Cork