Stable take-up in the office market allows Savills to forecast that prime office rents will be trending up by year-end and into 2013.
 
The retail market is holding its own, presenting opportunities for good retailers.  Prime locations remain effectively fully occupied, but a key trend to watch is the increased number of short-term leases, which is adding a new dimension to the market.  

The investment market has come to life again in 2012 with an estimated €230m of deals closed so far this year.  Savills expect that turnover will reach €500m by year end and €700m in 2013, the strongest level of take-up since pre the beginning of the downturn in 2008.  Activity in 2012 clearly represents the beginning of a new phase for the investment market.

This Irish Property Market Outlook is being presented by Joan Henry, Director of Research at Savills Ireland at a Savills Financing Property Event, the Westbury Hotel, 7.30 am Wednesday 3 October.

Dublin’s prime office market is, as predicted, leading the way in terms of a recovery of the commercial occupier markets and Savills predict that rents will trend up by year end and into Q1 2013…

In reviewing the Irish property market, Joan Henry, Director of Research at Savills Ireland says that the market has entered a new cycle.  As the end of 2011, there were signs of stability in terms of take-up in the main occupier markets, with offices leading the way.  This trend has continued into 2012, with a consistent level of take-up for each of the first three quarters of 2012. 

Total take-up from January to end of September reached 85,000sqm and based on current requirements in the market, our expectation is that take-up will be close to 110,000sqm for the year as whole.  While take-up at this level would be less than that reached in 2011, it does reflect stable demand on a quarterly basis since Q4 2011.  Of particular note is the fact that 70% of the take-up in Q3 was in the prime city centre locations, and 46% of take-up was for space in Dublin 2.

Consistent demand for space in the prime city locations, Dublin 2 in particular, has put a clear floor on prime rental levels.  Prime office rents, as forecast by Savills at the beginning of the year, have bottomed out in a range of €290-310sqm/per annum. Occupier preference continues to be for the take-up of the best space, Grade A, where possible.  Prime rents are expected to trend upwards by the end of 2012 and into Q1 2013.  The fact that there continues to be no new office completions anywhere in the Dublin market and there are none in the pipeline, adds further weight to this view.

In relation to secondary rents, there is increasing evidence that these are bottoming out – while not quiet at the bottom yet.  We forecast that secondary rents will bottom out in 2013 and will bump along the bottom throughout the year, depending on location, grade of building etc. 

The retail market is holding its own against a continuing challenging retail sales background, with well positioned retailers able to avail of prime opportunities…
Activity in the retail occupier market has to be set against a continuing challenging retail sales background.  However, while remaining weak, retail sales have not been as volatile in the first six months of 2012 as they were in the 2010 and 2011.  Consumer sentiment spiked up over the summer months, most likely on the back of expected lower interest rates and the hope that the jobs market would improve.  Consumer sentiment however, is likely to be sensitive to taxation measures which will be introduced in the upcoming budget and in turn will limit the upside potential of retail sales volumes and values.  That said at a macro-level the overall retail environment is more stable than before and allows retailers to make decisions.  Retailers which are active in the current market include the value grocery brands – Aldi and Lidl.  International non-grocery brands which are active include H&M and TK Maxx. 

The retail market is now entering a phase where the prime market is holding its own and this is creating opportunities for good retailers to avail of space and rents at very favorable terms and conditions.   A key trend that we are and will be continuing to watch is the dominance of prime in the current market – Savills Research shows that prime shopping centres and streets are fully occupied but it is very important to examine the detail of how the occupancy terms and conditions have adjusted in the last twelve months.  For example while headline data show that Henry Street is fully let, short-term leases and tenants currently trading with leases available on assignment mean that there are units trading but available.  Henry/Mary Streets had five units trading but available in the middle of 2012 and this level of flexibility brings opportunity and is set to remain a key theme in the market into 2013.

The investment market has come to life again as turnover reaches €230m to date in 2012 and is forecast to reach €500m by year- end and potentially €700m in 2013…

After a year of stagnation, the Irish investment market has come to life in 2012.  Increased activity is being driven by an increase in supply, particularly prime opportunities in Dublin 2 and 4.  Four deals in these two locations made up c €170m of the €230m take-up (the sale of the Alliance a residential block investment in Dublin 4, Riverside ii office investment and Warrington Place, also an office investment – both in Dublin 2 and the sale of Bank Centre in Dublin 4).  Other key deals include two retail investments – the sale of five units on Castle Market and the sale of 50 Grafton St, which sold for just over €7m between them.

Demand is evident across all investment price categories and this is expected to continue.  The increasing number of transactions is giving price transparency which in turn is expected to lead to further deals being completed.  Savills forecast that investment market turnover will reach €500m by year- end.  The outlook for 2013 is more positive again, with turnover to potentially reach €700m.