Sector-wide property market in Cork positive

Last year was strong, with investment turnover of €200m, or 9% of the national total, and with 17,000sqm of office space sold, writes Aoife Brennan

The property market outlook across all sectors in Cork is positive for 2018, following a strong 2017.

Last year, the investment sector had a turnover of €200m, or 9% of the nationwide total.

This is notable, because, in recent years, Cork was only 4% of the overall figure. So overseas investors now recognise the significant opportunities in Cork and when lot sizes of scale become available, they chase.

The outlook for 2018 is also good, with some key sales ongoing.

In the office sector, 17,000sq m of space was transacted in 2017. 51% of this was in the tech sector, which compares favourably to Dublin, where the figure was 33%. 50.4% of activity was by international companies, including Facebook’s Oculus VR.

What is most notable about this trend of overseas tech companies taking space is that they start small and expand rapidly.

The most high-profile examples are Facebook and Google in the Dublin market. Facebook acquired just 2,000sq m in its first year in Dublin, in 2009, but, within eight years, it had 39,000sq m.

It now occupies 1.7% of the total city centre stock. Even more dramatic is Google. It started with just 460sq m, in 2003, and, by the end of 2017, had committed to 73,000sq m, with media reports suggesting that it is also considering a further 37,000sq m.

If these reports prove correct, then it will occupy 4% of the city centre market.

These examples are important, because if Cork, or other office markets, are to continue to attract international tech companies, then top-quality accommodation must be available at any given time.

This is particularly important for Cork, because a recent survey by the local council, Cork Chamber, and the IDA found that international tech workers are moving to Cork for a better quality of life, career opportunities, shorter commutes, and lower living costs.

If workers want a location, employers will follow, so the office and residential markets in Cork will need to be ready.

This leads us to new construction. While office completions will intensify this year, 75% of the space is already taken, so focus needs to move to the next wave of development, where building works have been slow to start.

We will need more pre-lets (and not just mid-lets) to get schemes off the ground.

Looking at the industrial sector, 2018 will be another good year, following strong take-up, of 39,000sq m, in 2017. However, the lack of good-quality supply (because there was no speculative development in recent years) could hold back activity levels.

Despite growth of 19% last year, top rents remain below replacement cost, but this difference will lessen over the year and secondhand space will reach €75psm (€7psf).

For new construction to commence, top rents will need to be at least €86psm (€8psf). As such, if an occupier has a specific requirement, it will need to be fulfilled through a design-and-build route.

The main story of 2018, in the retail market, will be the continued growth of the food-and-beverage sector and the move towards “retail experience”.

To put this in context, in the 1990s and early 2000s, well-known fashion brands rolled out stores nationwide. But expansion plans were halted in 2008 and some stores began to close.

In the background, the world of online retailing was emerging, with many tech-savvy consumers sourcing discounted products online.

This was the beginning of the end of shopping as we knew it. In response, retailers with physical stores began to discount and are still doing so today.

Even as the economy has improved, they are no longer opening new stores nationwide. Instead, successful retailers have adopted omni-channel retailing; they do not mind how you shop, just as long as you buy their brand.

As a result, space has been created in-store, which is now being filled with retail experiences. Looking further into the future, artificial intelligence will have a huge impact on the retail market, with smart-home assistants, like Alexa, already compiling shopping lists and having goods delivered to the door.

ALL OF these developments will continue to impact the retail property market. With a more informed and demanding consumer, retailers will need to evolve quickly to meet their needs.

In turn, landlords will want to fill their shopping centres and high-street stores with brands that are on-trend, which may mean that we will see more flexible leases in order to allow for asset-management.

The growth in online sales will also ensure that leisure experiences will form part of the retail experience, something that is already being seen internationally. This would result in higher footfall, longer dwell time, and greater spend.

The purpose-built student accommodation sector was an immature market in Ireland just two years ago, but over that time has caught up significantly.

In spite of this, it remains undersupplied. Across Cork and Dublin, almost 5,500 bed spaces were built last year and there are currently 18,000 bed spaces at various stages of planning and construction.

Between 500 and 750 of these will be delivered in Cork in 2018, with a further 4,500 completed in Dublin. This is very positive for the sector, and the residential market generally.

The outlook for 2018 is positive and there is much to be hopeful about in the Cork property market.

Disruption is coming at us in many forms and we will continue to see it in the various sectors of the market, as changes in society’s behaviours and desires require the traditionally slow-moving property sector to move at a pace that planning and development systems are struggling to keep up with.

Aoife Brennan, director of Research at Lisney.


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