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Our View

LISNEY.COM Student Accommodation

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Lisney 2018 | Our View

Contents Residential

Development Land

4

New Homes

12

9

Investment

Offices

Retail

22

17 Industrial

Student Accommodation

27 Nursing Homes

36

32 Cork

Northern Ireland

44

41 Team

61

51

Introduction

2

Offices

22

Cork

44

Residential

4

Retail

27

Northern Ireland

51

Development Land

9

Industrial

32

News

56

Team

61

Contents

1

New Homes

12


36

Investment

17

Nursing Homes

41

Introduction

As the New Year dawns we have much to be hopeful about. The economy is growing, builders are building and values are rising. Many of the headwinds that we have to deal with are more developed than they were this time last year and yet they haven’t caused a downturn.

The economy is growing, builders are building and values are rising.

We continue to invest in research to provide our clients with an informed view to the future. As Brexit moves towards an end-game the stakes rise. We should be thankful that the cards we have been dealt since the game started have not been bad. As an all-Ireland business, Lisney is very aware of the challenges that Brexit presents, but our ability to view it from both sides allows us to recognise the opportunities, many of which lie north of the border. Disruption comes at us in many forms. We are seeing it in our markets more than ever as changes in society’s behaviour and desires require the traditionally slow-moving property sector to move at a pace that planning and development systems, in particular are struggling to keep up with. Disruption is not a new factor in the retail market. We continue to see the shift from comparison to leisure and

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experiential retail. With the change in ownership of significant elements of the retail landscape, we are likely to see players who are prepared to lead retailer and consumer demand flourish, and those who don’t will struggle. We anticipate significant new development in the industrial sector as the supply of larger buildings has evaporated. Accessibility has always been a key factor in the logistics market, however speed to market will come into greater focus. What has changed is that the supply line in many cases is now from the warehouse direct to the home. The middle step through the actual or virtual store does not involve movement of the goods. Somewhat counterintuitively, as we do more online from remote locations, shared habitation in a number of forms will continue to grow. From either end of the adult lifecycle we have shortages in student housing, shared professional

Above (L–R) Luas Cross City; Stella Theatre, Rathmines; Chichester House, Belfast and Dunluce, Ballsbridge

accommodation, hostels, private rental sector and nursing homes. Some of these are more serious than others from a societal point of view but all show an industry that is slow to adapt. These sectors all necessitate a more involved property owner than we are used to and require ‘switched on’ service providers who are funded to plan maintenance in order to drive returns. As these sectors develop, pricing differentials will emerge between the better operators, particularly in the buoyant economy as we expect to see in 2018. Those who navigate through the often out of date regulatory environment to provide what people and businesses require will thrive. Our office market will see a lot more accommodation being completed in 2018. Whilst the bulk of the space due for completion in 2018 is leased, space being vacated by its takers will provide opportunity to upgrade or redevelop older stock. Speed to market tends

to become a more desirable thing for developers as markets mature. We expect that many owners may go down that road rather than wholesale redevelopment in 2018 as the bull cycle rolls on. In 2018 the serviced and shared workspace end of the market is likely to grow in importance.

In a strongly growing economy, we expect to see the upper end of the residential market pull away from the median. While densities can increase, the best locations are more constrained by lower densities and will continue to attract the big spenders, be they renters or buyers.

Another feature we expect to see across the sectors is greater use of index linked rent reviews as owners, their lenders and investors look to protect from the downside of open rent reviews. As market rents grow and lease commitments lengthen thanks to demand outstripping supply, owners can protect their yield profile by having their income linked to a commonly used index rather than the vagaries of the market. International experience tells us that both landlords and tenants are happier with a less volatile rental profile and we can expect that to take further root.

Above all else, we look forward to this new year, to working together and with the backing of informed and considered advice, helping you find the winning opportunities that will make 2018 a successful year.

Duncan Lyster

Managing Director & Head of Investment January 2018

Introduction

3

Residential

4


OVERVIEW

2018 is going to be another strong year in the Dublin residential market as demand continues to outstrip supply. Price inflation is likely to be strongest in the first six months of the year when the demand / supply imbalance will be most acute.

Above (L–R) 9 Iona Drive, Glasnevin; 18 Balally Drive, Dublin 16 and 29 Fortfield Road, Terenure, Dublin 6W

It was notable in 2017 that by the start of Q4 many lending institutions appeared to have reached their lending quota for the year.

Buyers typically return to the market in January with renewed enthusiasm and determination to purchase a property. The issue is that this is a time when there is often fewer properties to choose from as many sellers decide to hold off until the spring or even early summer to put their property up for sale. Banks also return in the New Year with fresh resolve to offer mortgages as their yearly lending targets lie ahead of them. It was notable in 2017 that by the start of Q4 many lending institutions appeared to have reached their lending quota for the year. As such, they have more flexibility again in this regard. The Central Bank of Ireland made some amendments to the macro-prudential mortgage measures

in November 2017. Previously, in 20% of mortgage applications the 3.5 times loan-to-income limit could be exceeded for mover purchasers. However, from the 1st January this has been reduced to just 10% of mortgages. The rules have largely been positive in the past three years and they certainly took some steam out of price inflation when they were introduced in 2015. For 2018, they will continue to link affordability to earning capacity, which is welcome. Cash buyers still make up a significant portion of the market, currently running at about 40% nationally. While overall Dublin figures are not available, 36% of all purchasers buying a property through Lisney were fully funded by cash in 2017.

Residential Sales

5

Above (L–R) 55 Home Villas, Donnybrook and 61 Wellington Road, Dublin 4

Cash buyers have a slight advantage over mortgage approved buyers as vendors often perceive them to be a more straightforward option.

This figure has been falling over the past few years (44% in 2016) and we expect it to fall further this year. Cash buyers have a slight advantage over mortgage approved buyers as vendors often perceive them to be a more straightforward option to get the sale concluded. With cash still making up a significant portion of how properties are purchased, price inflation will continue at strong levels into 2018. However, we expect this to be at a slower pace of about 7.5% for the full year with the majority of the increases occurring before the end of the summer. Demand from first-time-buyers will remain very strong in 2018. This cohort will continue to compete for the limited stock available within a commutable distance of Dublin city centre. The underlying strength in the economy will ensure that the trading-up market will also remain active in 2018. However, this market will be difficult to navigate for many potential buyers. There are a number of reasons for this including:

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•C atch 22 — most purchasers are not in a position to buy a property until they sell their existing home and in turn they are reluctant to sell their existing home until they have identified a property they wish to buy. • Bridging finance — the absence of this prevents movers from buying a property before selling their existing home. •R ental market crisis — the well documented difficulties of supply shortages and strong rents mean that many are reluctant to consider renting between selling and buying. • Price growth — a fear that price inflation will continue to prevail at double digit annual levels means that many potential vendors are reluctant to sell their existing home too far in advance of purchasing their next house.

Above (L–R) Jerpoint, 28 Elton Park, Sandycove, The Old Vicarage, Silchester Road, Glenageary and Fernbank, Churchtown

These difficulties will continue into 2018 and as a result, we may see an increase in ‘chain sales’ that are more commonly associated with the UK market. The lack of bridging finance and the difficulties in the rental market are also affecting those wishing to trade down. It is obvious that there is space in the market for a financial product, such as bridging finance, to assist those wishing to sell their family home and buy a property more suitable for their current needs. This would lead to an increase in the supply of family homes for sale and would invariable temper price rises. In additional, it would be a positive move towards a more normalised market. There is no doubting that there is a housing crisis in Ireland stemming from the lack of homebuilding for almost a decade. However, the constant media attention on house price increases in recent years has distorted the perception of the value of houses at the mid to upper-end of the market. We believe this section of the Dublin market will remain price sensitive in 2018 as buyers focus on affordability. Houses that are sensibly priced will

continue to perform best. It is our experience that properties with strong asking prices take longer to sell. As 2017 progressed, price reductions became commonplace as sellers had to readjust expectations in order to secure a sale. The top end of the market was largely driven by domestic buyers in 2017, reflecting the strong performance of the Irish economy. Brexit uncertainty and weak sterling has deterred many UK-based Irish from purchasing. A greater degree of certainty around Brexit and its likely impact on Ireland as stage two negotiations continue will hopefully be more forthcoming during 2018. This may strengthen the upper end of the residential market as the year progresses.

This is due to rebalancing of supply and demand. At the end of Q3 2017, there were 7,390 new homes (3,760 houses and 3,630 apartments) under construction in Dublin. The vast majority of these will be sold in 2018 and early 2019. The pipeline is also strong with a further 21,900 properties with planning permission but have not yet commenced construction. These new schemes are likely to have a strong impact on the price inflation of second-hand properties this year and in the coming years.

New homes are sought after not only because of the newly finished product and the high energy ratings, but also the longer lead in time that allows buyers to sell their existing home before having to close the sale of their new home. Launches of large new homes schemes in a particular location can moderate price inflation in the immediate area. Residential Sales

7

RENTAL MARKET

The Dublin rental market was yet again exceptionally active in 2017 and will remain that way in 2018 due to tight supply.

Above (L–R) Wyckham Point, Dundrum and Coolmanagh, Old Carrickbrack Rd., Howth.

Landlords should be viewed as part of the solution to the rental crisis in Ireland and not the problem.

The rent pressure zones introduced in 2017 have had the effect of capping rents to a maximum increase of 4% each year across all of Dublin. But they have also pushed more landlords out of the market who are perhaps disaffected by their ability to increase rents to market levels. Landlords should be viewed as part of the solution to the rental crisis in Ireland and not the problem. The private landlord provides much needed supply to the market. If they were encouraged to enter the market in a more significant way, then the resultant increase in supply might be a more meaningful long-term measure to control spiralling rents rather than a temporary rent cap.

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This is critically important because if Dublin continues to be perceived as a prohibitively expensive place to live, it will become less attractive to FDI companies who may favour comparable European cities that can offer a similar quality of life at a more affordable cost of living.

Development Land

Development Land

9

The strong demand for development land, particularly residential sites, that was witnessed in 2017 will continue into 2018. As a result, values across most areas will continue to rise.

OVERVIEW

Above (L–R)

Development sites at Harold's Cross, Dublin 6 and Mount Merrion, Dublin 4

The private rented sector is likely to be busier in 2018 due to changes to apartment standards for blocks that are built to rent.

Prime city centre sites suitable for hotels, student accommodation, PRS residential schemes and offices will remain in demand. There will also be keener interest in medical and nursing home sites in the coming year. Strong demand for infill residential development sites in mature parts of Dublin will remain a feature of the market, particularly those with full planning permission. However, there is a limited supply of large sites in newer suburban areas suitable for immediate development. While lands may be zoned for housing, many lack essential infrastructure, which will impact on demand and price. With larger development sites, purchasers are primarily international

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private equity firms, often in partnership with Irish developers. Cairn Homes Plc and Glenveagh Properties Plc were very active in the latter part of 2017 and are expected to take part in both on and off-market purchases in 2018. Smaller infill sites will continue to mainly attract domestic purchasers. Forward funding of PRS emerged in 2017 with Marlet Property Group and M&G Investments bringing ‘Dublin Living’ to the market. This portfolio of four schemes is due to close in early 2018. The private rented sector is likely to be busier in 2018 due to changes to apartment standards for blocks that are built to rent. The standards will relax car parking requirements,

Buyers who purchased land in 2012 and 2013 are now able to exit the market with full profit if they do not want, or are unable, to develop lands.

the need for dual aspect, increase the number of units per core and permit smaller unit sizes. These amendments are very positive in terms of reducing building costs, which is making schemes that were marginal, viable. We also expect to see continued demand from housing associations seeking sites to deliver units and further co-operation between associations and developers in this space. In terms of notable Dublin sites due to come to the market in 2018, examples include lands at Kinsealy, the former Tech-Crete site in Howth, a site on the Stillorgan Road, a site at the Grange in Stillorgan and the Eir site just off Exchequer Street in the city centre. Other sites may also come back to the market due to the recent change in the capital gains tax waiver period. This means that buyers who purchased land in 2012 and 2013 are now able

to exit the market with full profit if they do not want, or are unable, to develop lands. This may result in other developers entering the market and putting the land to productive use. In terms of other sources of supply, with the success of schemes like Marianella in Rathgar it is quite likely that a number of institutional owners will consider disposing of surplus zoned land in 2018. nama will also be a source, much of which is likely to be through its licensing model, which allows developers to gain possession of housing sites on the payment of an initial fee and then reimbursing nama once the houses are sold. The potential increased flow of development opportunities from these sources will have a positive impact on activity and demand in 2018.

POLICY CHANGES

Significant policy changes have occurred in the past 12 to 18 months, mainly under the ‘Rebuilding Ireland’ framework, but also through other measures. Each of these will either directly or indirectly have a positive impact on the land market in 2018 and beyond.

Notable initiatives include:

• Major Urban Housing Development Sites (MUHDS)

• Home Building Finance Ireland (HBFI)

• Local Infrastructure Housing Fund (LIHAF)

• Ireland 2040: Our Plan — National Planning Framework

• Strategic Housing Development (SHD) — fast track planning

• New apartment and build-to-rent regulations

• National Student Accommodation Strategy • State Lands Initiative

• Increased funding for housing in Budget 2018 • Changes to the vacant site levy and the stamp duty rate

Development Land

11

New Homes

12


OVERVIEW

With the various initiatives included within ‘Rebuilding Ireland’ starting to take effect, the number of new homes completed and on-site commencements increased significantly in 2017.

Above Dunluce

Apartments, Ballsbridge, Dublin 4

It is very positive that in Dublin there are currently 7,400 units (3,770 houses and 3,630 apartments) under construction. Compared to 12 months ago, this has increased by 34% (houses +55% / apartments +18%). It is also notable that there are 22,000 units (9,000 houses and 13,000 apartments) with planning permission across the county but have not as yet commenced. This bodes well for this year and next as we expect the supply of new homes to gather pace. This will be further enhanced by positive economic and demographic factors boosting demand. Developments of starter homes in the outer fringes of Dublin and the surrounding commuter belt areas

in Kildare, Meath and Wicklow will continue to perform strongly in 2018 due to their greater affordability. The retention of the Help-to-Buy scheme in Budget 2018 will continue to allow developers to accelerate building programmes in these areas, while the impact of the Strategic Housing Development (fast track planning) system and the Local Infrastructure Housing Activation Fund �� will be particularly felt by developments of this kind. It is interesting to note in relation to the fast track planning, that in the first three months of its existence (July – October 2017), 6,000 dwellings and 5,000 purpose built student accommodation bed spaces applied to stage one of

the two stage process; notably in Dublin, 930 units were applied for at Clay Farm in Leopardstown. There will be ongoing demand in 2018 for smaller schemes of family homes within the €600,000 – €1m price range. The attraction of A-rated new homes and the demand for high quality construction has been evident at developments launched in recent months. Examples include Knockrabo, Mount Merrion and Broadlands in Killiney. A number of similar schemes are due to launch across suburban Dublin in 2018 and we anticipate continued strong demand in this market.

New Homes

13

The first significant new apartment schemes in a number of years were brought to the market in 2017. This trend will gather pace in 2018 and we will see significant launches of luxury apartments in areas including Ballsbridge, Rathgar, Churchtown and Mount Merrion.

These will be particularly targeted at the trading-down market. However, a report by the SCSI in October last year illustrated that it is still not commercially viable to build apartments in most parts of Dublin. This is due to the high cost of construction, namely VAT, levies and other soft costs, while the timeconsuming planning system (although the fast track process should help this) and a scarcity of affordable development finance are also holding back on-site commencements. It is vital to Dublin’s housing market and the economy generally that a dramatic increase in the construction of large scale apartment developments is undertaken, ideally next to transport hubs. At the time of writing the new

Below Broadlands,

Killiney, Co. Dublin

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apartment regulations were not finalised. It is anticipated that these will relax car parking requirements within a 1km radius of public transport (and perhaps justification as to why they are required could be introduced), as well as increased height on transport links and a greater variety of unit types (including studios). Also included will be guidance for the build-to-rent sector, where it is likely that dual aspect, maximum units per core and other requirements will be reduced. This is very positive because Dublin has seen only a handful of such schemes newly constructed. These guidelines will reduce the cost of construction and in turn, we believe more schemes specifically built for the rental market will commence.

The recently announced €750m Home Building Finance Ireland initiative has the potential to improve the funding landscape for builders and developers. If this initiative can make debt funding available at competitive rates, it will have a positive impact on supply in 2019 and subsequent years. 2017 saw double-digit price growth over the year and the ongoing demand / supply imbalance will ensure that upward pressure remains on residential prices in 2018. However, the impact of the Central Bank of Ireland's loan-to-income restrictions and limited wage inflation within the economy will moderate price rises somewhat in the coming year. We project price increases in Dublin of about 7.5% in 2018.

The Dublin Housing Supply Coordination Task Force tracks new and pipeline residential construction across the county each quarter. The figures, as at end-September 2017 are detailed opposite.

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1 3

4

Above Dublin, new homes, supply spread and status 1. DUBLIN CITY

2. FINGAL

UNDER CONSTRUCTION

2,325

PLANNING GRANTED PLANNING SUBMITTED

3. SOUTH DUBLIN

UNDER CONSTRUCTION

2,348

5,510

PLANNING GRANTED

3,299

PLANNING SUBMITTED

4. DUN LAOGHAIRE-RATHDOWN

UNDER CONSTRUCTION

1,150

UNDER CONSTRUCTION

1,570

9,415

PLANNING GRANTED

3,153

PLANNING GRANTED

3,820

2,906

PLANNING SUBMITTED

869

PLANNING SUBMITTED

3,678

Source Dublin Housing Supply Coordination Taskforce

New Homes

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CASE STUDY: SHARED PROFESSIONAL ACCOMMODATION

Shared professional accommodation is a concept that is gathering momentum internationally. It follows on from the emergence of purpose built student accommodation �� in recent years.

Above Assam Place,

London (Courtesy of HKR Architects)

This concept is very attractive to the Dublin rental market given the changing dynamic of the workforce.

The idea is that within clusters, a number of apartments with equally proportioned bedrooms including storage and an en-suite, will share living spaces and possibly open space. Such living is likely to appeal to young professionals who will want to have high quality private space in their bedrooms and then when they desire, share social space with other residents. It is similar to a group of professionals sharing a standard family home or apartment, but in this case, all have equally sized and better quality private space. The schemes themselves can have amenities such as a bar, gym, library, games room, cinema, restaurant, etc. The first example of this in Dublin is currently under construction on Pembroke Street Upper and is called Node. However, in the US and the UK in particular, it has been embraced by many with operators such as Roam, WeLive, OpenDoor,

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Common and the Collective all providing high quality schemes. This concept is very attractive to the Dublin rental market given the changing dynamic of the workforce. Not alone would it appeal to young professionals but also those from overseas working in large multinationals and people who only spend a few nights a week in the city. This is a sector we believe will grow in the coming years.

Investment

Investment

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TURNOVER

Investment market turnover was €2.24bn in 2017 (plus there was also over €600m in forward funding deals). It is likely that this figure will be lower for 2018.

In the Irish market over the past 45 years, it has always been an external shock that has ended upwards trends.

Investment market pricing has been in an upward cycle for the past five to six years and over that time, there have been some very strong years in terms of activity. Many significant assets have sold and resold. As such it is inevitable that turnover will drop back, but it will still be at a notable level in 2018 for a market the size of Ireland given the weight of capital looking to invest. The reduction in the CGT waiver hold period to a minimum of four years in Budget 2018 will assist in bringing some additional assets to the market. However, it may be a further two or three years before a more notable number of these feed through.

industrial sector, rental and capital values are just back to a level that justifies development. Given the supply shortages in the sector, new buildings are required and these are only beginning to come on stream. In offices, demand is very strong, particularly from international tech companies. They continue to seek space and of the new buildings due in Dublin in 2018, 55% of the accommodation is already taken. These individual market situations are all positive in terms of prolonging the cycle. In the Irish market over the past 45 years, it has always been an external shock that has ended upwards trends. Given that it is the relatively muted levels of new development at present that is prolonging the cycle, it is likely that an external shock will end it this time too.

Property market cycles are generally about seven years. For them to be extended, some market circumstance or disruptor must occur. Currently, there are a few. For example, in the Below Commercial

property, 12 month rolling turnover

Offices

Retail

Industrial

PRS

Other (Including mixed-use)

€5,000,000,000 €4,500,000,000 €4,000,000,000

TURNOVER

€3,500,000,000 €3,000,000,000 €2,500,000,000 €2,000,000,000 €1,500,000,000 €1,000,000,000 €500,000,000

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17 20

01 7

01 7

Q4

Q3 2

01 7

Q2 2

16 20

Q1 2

01 6

Q4

01 6

Q3 2

01 6

Q2 2

15 20

Q1 2

01 5

Q4

01 5

Q3 2

01 5

Q2 2

14

Q1 2

20

01 4

Q4

01 4

Q3 2

01 4

Q2 2

13 20

Q1 2

01 3

Q4

01 3

Source Lisney

Q3 2

01 3

Q2 2

12 20

Q1 2

01 2

Q4

01 2

Q3 2

Q2 2

Q1 2

01 2

€0

SENTIMENT

The amendment to the non-residential stamp rate in Budget 2018 was one of the most notable developments in the investment market in 2017.

A four percentage point increase is substantial and undermines confidence in Ireland as a location for investment. It highlights an investment market where snappy decisions can be made that seriously affect property values. We calculate that the four percentage point increase in purchaser’s costs leads to a corresponding 3.7% decrease in values. For those with equity when buying a property, this has an even bigger effect. If, for example, 40% equity is used, then there is a 10% reduction in this as all additional costs must come from an investor’s equity first.

Also in terms of sentiment, there are wider concerns about the Irish political environment. With a general election likely in 2018, there is a worry that if a left-leaning party or coalition were to be elected, then there could be further changes that would impact investor sentiment and property values.

Below 200 Capital Dock,

Dublin Docklands

Investment

19

FORWARD FUNDING In a bid to achieve good returns and to access grade A product, some investors have been focusing on alternative opportunities. Forward funding has become more notable, particularly through the Dublin Living portfolio of PRS schemes that was in the process of concluding as we entered 2018, and the sale of the Exo building in the Point Village in 2017. Further forward funding opportunities are available and more deals are likely to be done in 2018.

Above The Square

Shopping Centre, Tallaght

RENT REVIEWS

When it comes to new leases, it is likely that a greater number of CPI linked rent review clauses will be utilised this year and in the coming years; they were evident in some cases in 2017.

It is likely that many cases will go to court to be tested and this could have an impact on the investment value of certain assets in the longer-term.

When more uncertain times are looming, this is a tool used by landlords to achieve rental increases when rental values are not growing. As this protects income streams, it does have a positive impact on investment values.

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Separately in relation to rent reviews, in future years the rent review clauses that only allow landlords to trigger a review will come more into focus. Many of these were utilised in leases that commenced since 2010 as a way to protect landlords from falls in their income in future years. However, their legitimacy has not been tested and when rents begin to settle in the coming years, this will become more relevant for tenants. It is likely that cases will go to court to be tested and this could

have an impact on the investment value of certain assets in the longer-term. While this is not an imminent issue, those purchasing assets should be cognisant of the impact it might have in the future if such a lease is in place.

Above No. 1 Dublin

Landings, Dublin Docklands

YIELDS

Significant yield compression has occurred since mid-2012 and there remains very little room for further hardening.

2017 saw prime yields tighten to closer to larger European markets. This is being driven by a lack of annuity type income elsewhere in the capital markets and the increasing internationalisation of the buyer base. Trophy assets are likely to continue to see very strong pricing with a real weight of money looking to access property.

depending on sector. However, the baseline cost of capital is now different to that of 20 or even 10 years ago. The limited returns available elsewhere for cash deposits combined with nervousness about stock markets at all-time highs have pushed many investors seeking income returns into the property market.

We do expect to see yields reach the top of the cycle for the various asset classes in 2018. That does not mean that values will fall as rents are likely to continue to grow in some sectors. The long-term average rates (since 1980) are well above existing levels, by between 170 and 280 basis points

on yields rising as they have started to do in some US markets, driven in part by the US interest rate curve, which has moved above that of Ireland quite markedly recently.

As the market moves into the next phase of the cycle, the question is how will yields move? The real implications relate to the ‘Years Purchase’ (YP) or multiplier. The downward yield shifts that were seen in 2017 drove significant uplift in value for the owners. Yield movements when the market is below 5% have a profound impact on value. The risks look to be

Investment

21

Offices

22


INTERNATIONAL DEMAND

Heading into 2018, demand remains particularly buoyant in all parts of the Dublin market. 2017 was another strong year with Q2 the strongest quarter on record. International occupiers, particularly those in the IT sector are dominating the market.

Above (L–R)

4 Grand Canal Sq., Dublin 2 and Velasco, Grand Canal, Dublin 2

Most tech companies start small and if successful, expand rapidly in terms of office accommodation.

These are not just new entrants to the market but also established companies that have made a commitment to Ireland and continue to expand. It is interesting to review the evolution of these occupiers in the Irish market. Most tech companies start small and if successful, expand rapidly in terms of office accommodation. High profile examples in Dublin include Facebook and Google. With Facebook, it took its first lease in 2009 of 1,070 sqm with a further 820 sqm quickly added the same year. It then took two more leases in 2010, both approximately 1,100 sqm and then in 2011 and 2012, a further 800 sqm and 1,070 respectively. All of this was in Hanover Reach in the

Grand Canal area and totalled 5,960 sqm. Then in 2013, it moved from this premises and expanded into 11,300 sqm at 4 Grand Canal Square and the following year took an additional 11,750 sqm in the adjoining building, 5 Grand Canal Square. Last year in 2017, it expanded yet again, taking a further 15,800 sqm in the Beckett Building at East Wall, which is currently being fitted out. This means that over the space of eight years, Facebook went from occupying less than 2,000 sqm to occupying 38,850 sqm. The story of Google is similar but even more dramatic. It took its first lease in Dublin in 2003, taking 460 sqm on Earlsfort Terrace. It quickly expanded and the following year moved to the

Offices

23

FACEBOOK

18 20

17 20

16

38,500 sqm

20

15

23,050 sqm

20

20

14

11,300 sqm

13

5,960 sqm

20

12

4,890 sqm

20

11

4,090 sqm

20

10 20

09 20

08 20

07 20

06 20

05 20

20

20

03

04

1,070 sqm

GOOGLE 69,850 sqm

18

60,380 sqm

20

17

55,630 sqm

20

16

50,880 sqm

20

15 20

14

48,400 sqm

20

13

44,770 sqm

20

12

38,090 sqm

20

11 20

10 20

09 20

08 20

07

19,040 sqm

20

06

9,580 sqm

20

05 20

04

5,860 sqm

20

20

03

460 sqm

Above Facebook and Google office expansion in Dublin, 2003–2018

Google’s presence in Dublin in 2018 could represent 2.9% of Dublin’s total modern office stock.

5,860 sqm Gordon House on Barrow Street. In 2005, it took the adjacent building, Gasworks House, totalling 9,580 sqm. Google did not expand again until 2010 when it leased three buildings; 1 Grand Canal Plaza (3,670 sqm), Block L East Point (3,840 sqm) and Grand Mill Quay (1,950 sqm). In 2011, it took its biggest amount of space yet by purchasing the Montevetro on Barrow Street, directly opposite its European HQ at Gordon House and Gasworks House, which totalled 19,050 sqm. In 2012, it took two more buildings in East Point (2,960 sqm and 3,720 sqm) and another in 2014 (3,630 sqm). In 2015, it leased 2,480 sqm at 2 Grand Canal Plaza and in 2016 took more space in East Point (4,750 sqm). 2017 was another notable year for Google, when it leased 4,750 sqm in the newly

CONSTRUCTION

The biggest story in the office sector over the past three years has been new office construction. In 2017, new buildings began to become visible on the Dublin skyline as 15 (172,500 sqm combined) were completed in the city and suburbs, along with extensions to three (6,700 sqm).

24


constructed Velasco along the canal. As we enter 2018, we are aware that it is finalising a deal on 8,360 sqm in Sandyford, its first suburban location; a likely consequence of its ageing workforce who now live in the suburbs, in addition to a shortage of space in the city centre. As with Facebook, Google’s growth has been phenomenal in the Dublin office market; going from 460 sqm in 2003, to 15 years later occupying approximately 69,850 sqm. It has also been reported in the media that Google is in discussions to purchase two city centre buildings with combined floor space of approximately 36,800 sqm. If media reports prove correct, this would further add to Google’s presence in Dublin in 2018 and its combined floor space would represent 2.9% of Dublin’s total modern office stock.

This will intensify this year as about 20 buildings / 155,000 sqm will finish in the city and five buildings / 55,000 sqm in the suburbs. What is interesting about the city accommodation due in 2018 is that about 55% of it is already taken. Other schemes are ongoing (26,800 sqm) and these will be delivered in 2019. The spotlight is now beginning to turn to the next wave of development, for completion from 2020 onwards. While many sites have been cleared in preparation for construction, building works have been slow to start. Looking at the nature of developers in this cycle, it has been institutions;

entrepreneurs / developers mainly with international financing; and nama backed developments. Institutions are now stepping out of the market and for developers, financing is more difficult as credit committees get more cautious. There is potentially 720,000 sqm in the pipeline, some with planning permission and some without, which could commence in the next year or two. However, logic would suggest that these will need to be pre-let, or at least a substantial proportion of them pre-let, before construction begins. Pre-lets in the Irish market are difficult. Between 2006 and 2016, there were only eight true pre-let

agreements, and between 2015 and 2017, there have only been four (with others let once construction had commenced). It is often assumed that more pre-lettings should occur in the market, however the reason for the relatively low level is that occupiers do not plan three or more years ahead. In reality, they only have between six and twelve months visibility on their occupational needs. Or as with the Facebook and Google examples, expand so rapidly that waiting for a building to be built is not an option. Additionally, occupiers generally like to ‘see and feel’ the property before making a commitment.

Above Miesian Plaza,

Baggot Street Lower, Dublin 4

Opposite Dublin office

construction, 2018 and beyond

DUBLIN AIRPORT

CONSTRUCTION 2018 CONSTRUCTION POST-2018

Source Lisney BL ANCHARDSTOWN

HOW TH

DRUMCONDRA

INCHICORE

BALLSBRIDGE

TERENURE

BOOTERSTOWN

SANDYFORD

Offices

25

The serviced office market in Dublin has grown considerably in recent years. In 2017 alone, nearly 20,000 sqm of office accommodation was taken by operators for this use.

SERVICED OFFICES

Above (L–R) Iconic Office's Dublin 2 locations, The Wilde, Merrion Sq., Southpoint, Harmony Row and Sobo Works, Windmill lane, (Courtesy of Iconic Offices)

In terms of total stock, we estimate that at the start of 2018, there was approximately 94,500 sqm of serviced office accommodation in Dublin. 56% of this was in modern purpose built offices, while 24% related to Georgian buildings and the remaining 20% in other buildings. Additionally, 82% was in the city with the remaining 18% in the suburbs. In the past, the requirement for serviced offices was a trend that intensified when market conditions were favourable and then declined as the economy and property market did. But now there has been a permanent shift in this sector and it is set to grow further as new operators enter the market. Notable new players in the

26


last few years include Iconic Offices, WeWork and The Office Group. The growth of serviced offices could be seen as part of the movement to the ‘shared economy’ and not just a flexible solution for start-ups. Serviced offices today provide more than an individual office within a shared building with a call answering service, printing and photocopying. They also provide hot desking, collaborative and break-out spaces, and high tech conferencing facilities. The quality of the fit out has moved significantly forward with some offices even having the feel of boutique hotels. We believe this sector will continue to experience further growth this year

as a new generation of occupiers will require high quality, flexible space in a collaborative environment. Based on evidence from the UK, the sector could double in size in the coming years.

Retail

Retail

27

‘EXPERIENCE’ THE FUTURE OF RETAILING

A dramatic transformation has been taking place in retail over the past number of years and while retailers have been at the forefront of this change, the consumer, and to some extent landlords, have been somewhat removed from the trends as they evolve.

Above Victoria's Secret,

Grafton Street, Dublin 2

Omni channel retailing is rapidly evolving. Retailers who have embraced the change are using it to allow for a seamless shopping experience, whether the consumer is instore or online.

28


Looking back at retail during the boom years of the 2000s and previous good times, there was an influx of high street retail brands. UK retailers were on the expansion trail to drive their brands to reach the consumer. Stores were rolled out across high streets and shopping malls throughout the country. Names such as Monsoon, Oasis, Warehouse, Miss Selfridge, Next, Barratts, The Body Shop and HMV followed by H&M and Zara reached our shores. These brands were in most major towns and many shopping centres throughout Ireland. In 2008, following the financial crisis, expansion plans were halted and numerous stores closed. Behind the scenes, the world of online retail was starting to emerge. With a shortage of disposable income, the consumer

started to become more tech savvy in order to source quality products at discounted prices. They were no longer restricted to the local shop or familiar brands, but with online shopping could reach out and interact with the global market. The response from retailers on the ground was to discount. This trend continued throughout the recession and is still being used today to attract consumers back into their stores. The consumer could compare products, quality and price at the click of button. It was the beginning of the end of shopping as we knew it. Today, retailers are no longer rolling out stores in the same way and certainly not to anything like the same extent. Omni channel retailing

The ‘bricks and mortar’ and online store are no longer competing with each other. The most successful brands have embraced both formats.

is rapidly evolving. Retailers who have embraced the change are using it to allow for a seamless shopping experience, whether the consumer is instore or online. It gives this retailer an advantage over their competitors. They do not mind how you shop as long as you are buying their brand. While shopping in store, consumers increasingly have a smart phone to hand and are encouraged by retailers to go online when in store. Data is being gathered with every click. Stores no longer need to carry every colour, shape and size in stock, as consumers can order or purchase online and revisit to collect the item. Increasingly consumers are choosing to have their purchases delivered to their door or are using other means of delivery such as Parcel Motel. It will not be too long before drone delivery becomes a reality. Consumers are invited to provide email addresses so that receipts can be emailed; thus allowing the retailer gather further information about their customer. With stock no longer required in store, vast empty spaces have been created. These empty spaces must be filled and so begins the world of ‘retail experience’, the beginning of the future of retail. The ‘bricks and mortar’ and online store are no longer competing with each other. The most successful brands have embraced both formats. Brands

which were once only online have now opened physical stores; Amazon, Spartoo, Vistaprint, Boll & Branch, Bonobos. While the formula for each is evolving and changing, one thing that remains certain is that they are all moving away from the traditional store. The bricks and mortar shop allows the consumer to experience the brand with an emphasis on engagement and face to face personal interaction. Online retailers are opening physical stores as they realise that a consumer often wants to touch and feel the product before they are willing to trust it and be comfortable to go online. The online experience is ultimately the virtual changing room, stock room and till. In the U.S, Nordstrom has developed its first concept store where the consumer is offered experiences instore such as manicures; a coffee and drinks bar; a personal stylist; a tailor; and a collection point. Here in Ireland, ikea opened its first click-and-collect store in 2016, in Carrickmines Retail Park. The store allows the consumer order items in store or online and collect for a charge. It sells limited stock in store but the consumer can dine at the ikea café. For those retailers who were used to the traditional store, they are moving towards ‘the experience’.

Below The Stella

Theatre, Rathmines, Dublin 6

Retail

29

Above Luas Cross

City, Dawson Street

Today, it is an experience for the consumer which will draw them in and ultimately attract them to purchase the goods online.

On Fifth Avenue, The North Face flagship store has large tents erected at ground floor level with little or no stock on sale. This once would have been the most valuable area in a store for the retailer to have their stock displayed. Today, it is an experience for the consumer which will draw them in and ultimately attract them to purchase the goods online. The consumer has seen the product, can touch and feel it, has bought into the experience and the brand and is encouraged to go online to purchase. Apple, one of the front runners in this rapidly changing landscape, describes its future store as ‘gathering places’ where people can experience classes for coding, music and photography. Stores will no longer be stores but ‘squares’ and malls will no longer be malls but ‘avenues’; tree lined and a place where people can hang out. With advances in technology and AI (Artificial Intelligence), the future retailing environment will be fully

30


interactive, engaging and entertaining. Amazon Go launched earlier this year and allows the consumer to enter the store, browse, select items and walk out without engaging with a shop assistant or self-checkout. Computer vision and sensors track the items desired and an app downloaded to a mobile phone charges the customer’s account. It is only a matter of time before cashiers are a thing of the past. The smart home assistants, Alexa, Siri and Cortana will also change the way we shop. Compiling shopping lists, they provide a direct ordering and delivery service to our door. Already, food packaging can be sensored to indicate when they are empty; fridges can track expiration dates on bar coding; we will even have plastic ice cubs with Bluetooth Beacons that can determine when drinks are empty. All these devices will interact with Siri, Alexa and Cortana who will ensure stocks in cupboards are replenished even before we have noticed items were running short.

There is no doubt technology has rapidly changed the retailing landscape in a relatively short space of time. Now the possibilities are endless.

The smart home assistants, Alexa, Siri and Cortana will also change the way we shop.

Virtual and augmented reality is only around the corner which will further change how retailers and consumers interact. This will, in turn, impact on the nature of retailing and stores of the future. And we have not even looked at the possible downstream effect on property values.

Retail

31

Industrial

40 32


Take-up figures in the Dublin industrial and logistics sector remained strong in 2017 with just under 250,000 sqm estimated to have been let or sold.

ACTIVITY

Below Dublin industrial and logistics sector take-up performance

Take-Up 600,000 500,000

SQM

400,000 300,000 200,000 100,000

F)

F)

19 ( 20

18 (

20

16

15

17 ( 20

20

20

13

14 20

20

11

12 20

10

20

20

08

09 20

20

06

05

07 20

20

20

03

02

04 20

20

20

00

9

8

7

6

5

01 20

20

19 9

19 9

19 9

19 9

19 9

19 9

4

E)

0

Source Lisney

Downward trend will continue with the supply of modern industrial accommodation remaining scarce in 2018.

Strong demand continues to disguise the underlying shortage of modern logistics buildings in prime locations. In terms of market activity in 2018, we expect another good year. The changes to the capital gains tax (CGT) waiver will mean that assets bought in 2012 and 2013 can now be traded without a CGT liability (previously, property assets bought between December 2011 and 2014 could be sold with no CGT liability after seven years; however Budget 2018 reduced this minimum hold period to just four years). This will present opportunities for investors wishing to buy and sell in 2018. The largest sale ongoing at the start of 2018 is the HP Liffey Park buildings and lands. In total, this comprises almost 140,000 sqm of space and an additional 70 acres of zoned industrial lands. The sale is likely to close in the first half of the year and will add significantly to 2018 activity levels.

Activity will also be boosted by the number of large requirements in the market and some of these deals will be agreed in Q1 as design-and-build projects. Many of the requirements are driven by the retail sector for nationwide distribution. This is a similar trend to that seen in the UK where 46% of all logistics takeup relates to retailers. There is potential demand of approximately 100,000 sqm of space from the retail sector in the first half of 2018. The amount of available space fell by over 10% in 2017. This downward trend will continue with the supply of modern industrial accommodation remaining scarce in 2018. While more properties may come to the market for sale due to the CGT waiver period reduction, there will be continued strong take-up of these and the lack of options will continue to frustrate potential occupiers.

Industrial

33

Capital and rental values will increase further during 2018. This will be evident across all stock, regardless of quality, size and location.

VALUES

Above 624 Northwest

Business Park, Dublin 15

Rents on new builds start from €97 psm and rents for prime secondhand space range from €75 psm to €90 psm.

34


Sale prices on some second-hand buildings still remain just below the cost of replacement; however we expect this trend to fade during the first half of the year. Having increased by 18.4% in 2017, prime rental values have now reached a level that justifies new development. As such, there is now little difference between prime existing rental levels and rents being required to design-and-build a building. Rents on new builds start from €97 psm (€9 psf ) and rents for prime second-hand space range from €75 psm to €90 psm (€7 – €8.40 psf ).

FUTURE FOCUS: ARE DRIVERLESS TRUCKS ON THE WAY?

This is an interesting question and one that is not from a sci-fi movie or as far into the future as might be expected. It was recently reported that a convoy of self-driving trucks drove across Europe and arrived safely at the Port of Rotterdam.

Above (L–R) Driverless truck and automated warehouse

A driver cannot drive more than 11 hours per day without taking an eight hour break, whereas a driverless truck could potentially drive for 24 hours straight. Needless to say, from a logistics point of view, this would increase activity and movement between destinations, not to mention large savings on fuel and labour, and reported safety benefits. Truck driving is an occupation the younger generation have less interest in compared to generations of the past. Reports indicate that the average age of a commercial truck driver in the UK is 55 and continually rising. This, combined with projected driver shortages, is creating the incentive to adopt

driverless technology in the future and possibly sooner rather than later. Driverless trucks combined with fully automated warehouses could see more IT consultants employed in the logistics industry than general operatives, forklift operators and truck drivers in the future. The primary barrier to this happening is regulation. Drivers will still be required to drive trucks to the motorways where ‘autopilot’ can then takeover. While there will be many objections, it is only a matter of time before some elements of automation are introduced to the logistics industry.

Industrial

35


36


OVERVIEW

2018 is set to be a busy year for the Purpose Built Student Accommodation �� sector with close to 18,000 bed spaces at various stages of planning and construction nationally at the start of the year.

Above Binary Hub,

bedroom and kitchen, Dublin 8 (Courtesy of Hines)

18,000 bed spaces at various stages of planning and construction nationally at the start of the year.

This follows on from 2017 when Dublin and Cork saw significant levels of activity with about 5,400 new bed spaces completed. In July 2017, the government launched the National Student Accommodation Strategy �� as part of ‘Rebuilding Ireland’. The aim of this is to increase the supply of �� and complement the various actions being taken through ‘Rebuilding Ireland’ to address the housing crisis. Through the Strategic Housing Development �� initiative (i.e. fast-track planning, also introduced last July), new schemes with more than 200 bed spaces can apply directly to An Bord Pleanála for permission. This is a positive step and will help in speeding up the supply of accommodation.

�� has already utilised this by applying for 3,006 bed spaces to be developed over a 10 year period. A decision is due in mid-January.


37

SUPPLY AND DEMAND

At the start of 2018, there was a stock of just over 34,300 student bed spaces across Ireland. This falls significantly short of the estimated demand for beds of over 57,000. The imbalance is most acute in Dublin, Cork and Galway.

Above Dorset Point,

Dorset St., Dublin 1, exterior and gym (Courtesy of Hines)

The table opposite shows the current and future mismatch between demand and supply as forecast by the government. Focusing on Dublin and Cork, the current deficit is 16,975 and 1,698 bed spaces respectively. However, the pipeline for 2018 and subsequent years is strong, as can be seen opposite. It is evident that the majority of immediate future supply in Dublin will be in D1, D7 and D8 while in Cork, it will mainly be in the south central area.

Below Student accommodation,

supply and demand mismatch DUBLIN

CORK

GALWAY

LIMERICK

OTHER AREAS

NATIONALLY

SUPPLY 2017

13,323

3,788

3,230

6,816

7,175

34,332

DEMAND 2017

30,298

5,486

5,491

7,724

8,076

57,075

EXCESS DEMAND

16,975

1,698

2,261

908

901

22,743

SUPPLY 2019

18,142

4,352

3,887

6,831

7,475

40,687

DEMAND 2019

35,913

6,463

6,093

9,000

8,972

66,441

EXCESS DEMAND

17,771

2,111

2,206

2,169

1,497

25,754

SUPPLY 2024

28,806

5,490

4,702

8,181

7,475

54,654

DEMAND 2024

42,375

7,391

6,652

9,798

9,424

75,640

EXCESS DEMAND

13,569

1,901

1,950

1,617

1,949

20,986

Source National Student Accommodation Strategy, Department of Education and Skills, Rebuilding Ireland, Lisney

38


Opposite Student accommodation, Dublin pipeline BED SPACES

NO. SCHEMES

UNDER CONSTRUCTION

4,240

13

PLANNING PERMISSION GRANTED

3,830

25

IN PLANNING

4,368

8

5,881

6

STATUS

PRE-PLANNING

DUBLIN

329

9

4

341

161

130 132

203

8

NORTH STRAND

444

541

16

PHIBSBOROUGH

BROADSTONE

STONEYBAT TER

DRUMCONDRA

364

224

108

96 571

7

243

77

117 32

232

EAST WALL

520

374

20

IFSC

POINT VILL AGE

970 RIV

IFF ER L

EY

36

TEMPLE BAR

12,438

250

19

Source Lisney, Construction Information Services

244

296

THE LIBERTIES RIALTO

406

349

182 308

31

STELL A GARDENS

300

232

346

15

303 5

54 23

3,006

106 PORTOBELLO

RANEL AGH

BALLSBRIDGE

Opposite Student accommodation, Cork pipeline BED SPACES

NO. SCHEMES

UNDER CONSTRUCTION

318

2

PLANNING PERMISSION GRANTED

1,593

6

IN PLANNING

753

3

STATUS

PRE-PLANNING

0

0

CORK ST LUKE’S

BALLYMACTHOMAS

ARD SIONNACH

RIV CARRI

GROH

ANE R D.

2,664

484

ER

LE

242

E

202

WELLINGTON BRIDGE

344

HEEN

R D.

35

350

DEERPARK

1

GLAS

85

116

R

Source Lisney, Construction Information Services

116 417

UNIVERSIT Y COLLEGE CORK

197 161

CL ARKE′S BRIDGE

CORK LOUGH

Below Dorset Point,

Dublin 1, kitchen (Courtesy of Hines)

Dublin currently has 13 pbsa developments actively under construction and an additional 25 with planning permission. Cork has 2 pbsa schemes under construction and 6 where planning permission has been granted. It is expected therefore that Dublin will see in excess of 4,500 bed spaces being provided in the next 12 to 24 months and a further 500 to 750 bed spaces in Cork.


39

Lisney has been tracking Dublin �� rents since 2014. Over that period, academic year rents have increased by approximately 29% (both on-campus and off-campus).

RENTS

Above Dorset Point,

Dublin 1, common area, basketball court and bedroom

Rents will likely continue on this upward trend in the next number of years as the market matures.

40


This is broadly in line with the growth in rents of Dublin apartments generally, at 27%. From the pbsa schemes we have reviewed (close to 40), rents for the 2017/2018 academic year range from €5,000 per bed space (mainly older, on-campus properties) to over €10,000 / €11,000 in some situations. In Cork, rents for the current academic term (26 schemes reviewed) range from €3,300 to €7,950. For the upcoming 2018/2019 academic year, we believe that rents will rise further due to the significant demand. Rents will likely continue on this upward trend in the next number of years as the market matures. However, in the mediumterm, affordability will come more into question (as it is in the UK at present) and as supply increases, there will be a

greater divergence between top quality and older stock. Based on research in the UK, the location of the scheme will continually decline in importance and the amenities provided by schemes will become more important to students. This will impact on achievable rents.

Nursing Homes

Nursing Homes

41

WHERE ARE THE OPPORTUNITIES?

The Irish nursing home industry is a recognised growth sector in Ireland. This is because the population is ageing and living for longer.

According to HIQA, there are 30,658 nursing home bed spaces in Ireland.

According to Census 2016, there were 637,200 people aged 65 and over (148,600 over 80 years) in Ireland in April 2016; an increase of 20% from 2011. Dublin and Cork had the largest proportion at 26% and 12% respectively. The population is expected to continue to age with the number of people 65 and over forecast to increase by almost 80% by 2036 and by 128% by 2046 when compared to 2016 levels. As such, the immediate and potential future demand for nursing home bed spaces has been recognised and new entrants, both domestic and international, have moved into the market in the past year. These are seeking to provide a substantial number of nursing home bed spaces across the country. According to hiqa, there are 30,658 nursing home bed spaces in Ireland. These are split 80% private and 20% public. In recent years, there has been a move away from smaller

42


centres to more efficient, larger premises. However, only 8% of the centres currently in operation have more than 100 bed spaces.

According to the HSE, 5% of all older people will require residential or nursing home care at some point.

SUPPLY AND DEMAND

Below Bed spaces, current excess / deficit per county. * Based on a 5% > 65 requirement 600

NO. OF UNITS

400 200 0 -200 -400

ON E

M LD AR

KI

SC OM

LW AY

RO

IC W

GA

AR Y KL OW

EA TH

PP

ER

TM

TI

ES

RL OW

W

CA

EA TH

M

M RI

FA LY

IT

OF

LE

OR D CA VA N

NY EN

LO N

LK KI

GF

AN E AR

CL

OR

AG H

RF

ON M

K IC ER

W AT E

LI M

O

AY O

IG

M

SL

K

FO

CO R

S

TH

EX W

LO U

LA OI

GA NE

RR Y

KE

BL DU

DO

IN

L

RD

D

-600

Source CSO, HSE, HIQA, Lisney

15 counties do not meet the 5% assumption with the most under-resourced comprising Dublin, Donegal and Kerry.

To gauge the likely demand for accommodation in the future, we have assumed that 5% of the 65 and over cohort will require nursing home care. This suggests a current potential requirement for 31,860 beds and a shortfall of approximately 1,200 bed spaces.

excess of over 500 beds. However in reality, some residents of homes in Kildare may come from Dublin because of the greater availability of space. New construction is ongoing and as such those with significant deficits, particularly Dublin, will see improvements in the medium-term.

We have analysed the market in each county around Ireland and have found that some were greatly undersupplied while others have an oversupply. 15 counties do not meet the 5% assumption with the most under-resourced comprising Dublin, Donegal and Kerry. The best served are Kildare, Roscommon and Galway. The chart above shows the current excess or deficit in bed spaces in each county. In effect this is showing whether there are too many or too few bed spaces in a county based on its population. Some counties appear to have a large excess for their population. Take Kildare for example, there is an Nursing Homes

43

Cork

52 44


INVESTMENT

Investor activity in Cork remained strong in 2017 with €156m in turnover recorded. The largest sale of the year was The Capitol Building on Patrick Street, which German fund Real I.S. purchased for a reported €45.5m.

At the start of 2018, prime equivalent yields were offices 6.75%, retail 6.0% and industrial 8.0%.

This sale demonstrates that international investors recognise the opportunities that Cork offers and when lot sizes of scale become available, they actively chase. This will be the case again in 2018. Demand will be particularly focused on prime offices as many properties are still selling for prices below replacement cost and the returns available are attractive when compared to yields in Dublin. Demand will also be present for PRS schemes, despite the fact that there will be very few opportunities on offer. One of the biggest deals of 2018 is likely to be the sale of The Elysian, which is guiding €73m. Large deals in other sectors that will close in 2018 include offices at Barrack Square, Ballincollig (guide €24m), Debenhams on Patrick Street (guide €70m) and Blackpool Shopping Centre and retail park (guide €117m).

For the smaller lot sizes, private investors will continue to seek property investment opportunities up to about €1.5m. Competitive bidding will be seen for certain assets at this level, mainly in the office and industrial sectors. We expect further capital value appreciation, although the rate of increase will slow. At the start of 2018, prime equivalent yields were offices 6.75%, retail 6.0% and industrial 8.0%. These may harden slightly over 2018.

Below The Elysian, Cork

Cork

45

RETAIL

As with other parts of the country, the F&B sector led activity on the prime shopping streets in 2017 and this is likely to be the case again in 2018.

IKEA is considering opening a full retail store in Cork, but no specific location has yet been confirmed.

With demand from comparison goods retailers less, there are currently a larger number of vacant units on key streets. This includes Patrick Street where there are 14 unoccupied shops, the highest in recent years; but it should decline over 2018. In terms of future development and expansion in the Cork retail market, planning has been sought for the redevelopment of the former Victoria Hotel to retail use. This is adjacent to Penneys on Patrick Street / Cook Street, where planning permission is also expected to be sought for a redevelopment in 2018. Nearby, Merchants Quay shopping centre sold to Clarendon Properties in 2017. This was granted planning permission in 2015 for redevelopment, however it is yet to be seen whether this will happen. If these redevelopments occur, they are very good news for this part of Patrick Street.

Below Cork city centre

and docklands

46


In other good news, it has been reported that ikea is considering opening a full retail store in Cork, but no specific location has yet been confirmed.

OFFICE

Demand for high quality modern office space remained strong throughout 2017, particularly among domestic occupiers seeking accommodation in the city centre.

This occupier demand will continue into 2018 and we are likely to see the vacancy rate fall further. There are a number of active office enquiries for the city centre with requirements over the next 12 months.

in the short to medium-term. At the start of 2018, a total of 41,900 sqm of office accommodation was under construction. This includes a significant extension to Apple’s facility at Hollyhill.

an adjoining office building in the park and when the new building is completed it will occupy about 12,550 sqm of space in Eastgate making it the largest office occupier in the park.

During 2018, the 4,650 sqm ‘eighty5’ South Mall will be completed. This is very positive for Cork’s traditional business district and should help in reviving the immediate area. Also in the city centre, the first phase of Navigation Square at Albert Quay (13,900 sqm) is due to be completed in November. It is already about 50% let to an expanding FDI company that is based in Cork.

In terms of the construction pipeline, there is planning for a further 128,000 sqm across nine locations. In the suburbs, examples include 2100 Cork Airport Business Park (6,500 sqm); 2829 Cork Airport Business Park (12,000 sqm); City Gate, Mahon (26,000 sqm); Westfield Office Quarter, Ballincollig (24,500 sqm); and Eastgate Business Park in Little Island (12,000 sqm). In the city centre, the joint venture between Clarendon Group and BAM on the Horgan’s Quay site has applied for planning permission for 37,150 sqm of office accommodation. This is part of a larger proposed HQ development.

In both the city centre and the suburbs, rents continued on an upwards trend in 2017 (prime city centre grew by 15.4%). Further growth will be seen in 2018. Cork rental levels remain very competitive when compared to Dublin and as a result, Cork will continue to attract FDI companies in 2018. In particular, many existing FDI companies in Cork are due to expand and are actively undertaking property searches and considering the pipeline of new development. There has been considerable focus recently on the volume of new office stock coming on stream and planning activity. This bodes well for activity

In Little Island, at Eastgate Business Park, O’Flynn Construction has planning permission for 12,000 sqm across two buildings. At the end of 2017, it was announced that a deal had been agreed with Lilly to take one of these buildings and construction has commenced. Lilly already occupies

Below (L–R) Unit 8 Cork Business & Technology Park and Unit 14 Cork Business & Technology Park

Cork

47

Opposite Cork Office Construction Pipeline UNDER CONSTRUCTION PLANNING GRANTED

Source Lisney

EASTGATE LIT TLE ISL AND CIT Y CENTRE BALLINCOLLIG

MAHON CORK AIRPORT BUSINESS PARK

INDUSTRIAL

2017 was a very active year in the industrial market in Cork and we anticipate that there will be continued strong occupier demand in 2018.

Rental levels in the south, east and west suburbs all increased by 18.6% in 2017, while the north suburbs grew by 12.5%.

There is a very limited supply of modern warehouse buildings of all sizes across Cork. No new speculative development has occurred in a decade and the supply of available existing stock has fallen substantially. This, combined with increased activity, means that there has been upward pressure on rents. Rental levels in the south, east and west suburbs all increased by 18.6% in 2017, while the north suburbs grew by 12.5%. This upward trend will continue in 2018 and we expect top rents to reach €75 psm (€7psf ) for well-located modern existing stock. As tenants compete for the limited stock available, lease terms are hardening and will harden further in 2018 with reduced rent free periods on offer to tenants. Capital values for prime larger buildings in the south, east and west suburbs increased by about 30.1%

48


during the year while capital values in the north suburbs increased by 24.8%. Vacancy rates will fall further in 2018 as there will be no new speculative development completed in the year. When new construction does commence, it is likely to focus on the east of the city, in Little Island, as there are undeveloped sites at Harbour Point Business Park and Anchor Business Park. However, it will be 2019 before new buildings are completed and ready for occupation. Design-and-build lettings will need to achieve rents of about €86 psm (€8 psf ) to justify new development. Rental values for modern buildings will gradually need to move towards this level for a more notable level of construction to commence.

DEVELOPMENT LAND

There was an increased appetite for residential development land in Cork over 2017 with competitive bidding on any sites that were offered for sale.

In 2017, eight new Local Area Plans were published relating to Cork.

This will be the case again in 2018 and we expect further significant residential development land opportunities to come to the market. The two top prices achieved for zoned residential land last year was €1m per acre at Hawks Road in Bishopstown and €760,000 per acre for lands at Model Farm Road. Prices in 2018 are likely to be at similar levels.

(1,390 acres). These included lands at Castletreasure, Frankfield /Grange and Oldcourt on the southside of Cork city and Togher / Doughcloyne and Ardrostig on the western side. It is likely that significant development will happen in these areas in the future.

In 2017, eight new Local Area Plans were published relating to Cork. Within these, the local authority stated the need for additional strategic land reserves to cater for the anticipated economic and population growth in the coming years. 12 strategic land reserve sites were identified and six of these were recognised as potentially having greater capacity

Below Kent Station – Clarendon

Group and BAM JV of the CIE site at Kent Station submitted a planning application for a mixed-use development of 237 apartments, 136 bed hotel and 37,160 sqm

Cork

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RESIDENTIAL

We expect to see increased demand for homes across Cork in 2018. New home supply remains restricted and this will continue to put pressure on the second-hand market.

Apartment prices are likely to continue to grow as demand increases from buyers priced out of the traditional house market and first-time buyers.

The Central Bank of Ireland’s lending measures appears to be impacting prices in certain areas more than others. This is leading to a moderation of price increases across Cork city and suburbs, and increased demand for properties located within the commuter towns. We expect prices in Cork to rise by approximately 6% in 2018. Apartment prices are likely to continue to grow as demand increases from buyers priced out of the traditional house market and from first-time buyers. Apartments also offer an attractive proposition to those trading down and there was an increase in demand from this buyer cohort during 2017, which is likely to continue. A lack of bridging finance will continue to have a knock on effect on this section of the market and in turn, the supply of larger family homes coming to the market.

Below Blackrock House,

Co. Cork

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The number of new homes completed and on-site commencements increased significantly in 2017 and will continue to do so in 2018. It is positive that housing completions in Cork increased by 9.6% in the year to October 2017. However, this is still below the level that is required. As with all rental markets nationwide, the Cork market is extremely active with the RTB stating that rents rose by 11.4% in Cork city in the year to September 2017. Despite the addition of further rent pressure zones in the suburbs, we expect rental growth above 4% for the overall market in 2018. In the medium to long-term, the addition of a notable amount of purpose built student accommodation schemes should help alleviate some of the pressure on the rental stock levels across the city.

Northern Ireland

Nursing Homes Northern Ireland

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Predictions on the property market in Northern Ireland are more difficult this year than they have been for some time due to Brexit. There is a general consensus in the business community that more certainty is required, and sooner rather than later.

OVERVIEW

Above Chichester House,

Chichester St., Belfast

There were more cranes in the Belfast skyline at the start of 2018 than at any other time over the past 10 years.

In spite of this, the first stage agreement reached between the British government and Europe in December gave rise to some positivity as there is now some clarity on the border and a fall-back position for Northern Ireland if a trade deal cannot be brokered. Notwithstanding the political sensitivities, Northern Ireland may emerge post Brexit with a very unique selling point; bridging two large markets. This could create significant opportunity for the region. In the meantime, for those who look beyond the current state of flux, there are opportunities available and many positive developments. For example, there were more cranes in the Belfast skyline at the start of 2018 than at any other time over the past 10 years; an additional 1,500 hotel bed spaces are due; construction is ongoing on the new £250m Ulster University campus; and works on the new £175m

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Translink Transport Hub for Belfast city centre will commence this year. All of this progress is in spite of the lack of a devolved government. More could be achieved if devolution is restored and the long awaited 12.5% corporation tax rate is implemented, in addition to progression of the City Deal (i.e. a ten year investment plan). Combine these measures with the added stimulus of the Northern Ireland Investment Fund as well as the significant infrastructure projects advancing following the £1bn in extra funding coming from Westminster, then conditions in Northern Ireland could be even brighter.

INVESTMENT

Setting to one side wider macro events, there is significant value and opportunity to be had in the investment market in Northern Ireland in 2018 with capital values still some way off pre-recession levels.

The total investment market turnover for 2017 was about £250m.

In spite of this, core markets remain robust. The sale of Castlecourt Shopping Centre by Hermes Fund Management to Wirefox Investment Group was the most notable deal at a reported £125m in 2017.

OFFICE

Encouragingly, the office market in Belfast this year is likely to continue where 2017 ended – as one that reflected a more functional market.

Last year, a substantial proportion of letting activity related to digital / technology occupiers, a trend that is likely to continue in 2018.

This was due to the amount of office accommodation taken up and the range in size of the transactions. It was also notable that there was a good mix of indigenous occupiers along with new market entrants seeking and taking space. Last year, a substantial proportion of letting activity related to digital / technology occupiers, a trend that is likely to continue in 2018. As these tech companies continue to dominate the market, we will see developers further embrace their property requirements. This has already been the case with Causeway Asset Management launching its ‘future fit’ concept in Chichester House (4,270 sqm / 46,000 sq ft) and refurbishment of Nine Lanyon Place, which will provide 9,300 sqm / 100,000 sq ft of accommodation in 2018 (and critically will have 2,320 sqm / 25,000 sq ft floor plates, the largest available in the City

The total investment market turnover for the year was only £250m. We expect resurgence in market activity in 2018, particularly for offices, as both vendors and buyers recognise the opportunities on offer due to the unprecedented rental growth witnessed in the past 24 months.

in 2018). In a Northern Ireland first, both of these buildings will benefit from the ‘Wired Score’ certification that certifies the digital connectivity of buildings. The buildings will also assist in alleviating the supply shortages that prevail. With the success of these buildings it is hoped that there will be further good quality supply brought to the market in 2018. In what is a very recent development and one that is likely to continue this year, we have started to see several companies that are based in the Republic of Ireland make tentative enquiries about office space in Belfast. This is likely coming from the potential implications of Brexit and is a positive for the office sector in Northern Ireland.

Northern Ireland

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RETAIL

2018 is likely to be another challenging year for retailers, albeit better than 2017. The impact of cost inflation, driven mainly by the weakness in sterling and interest rate rises, is impacting on retailers’ performance.

We are confident that retailer demand for Northern Ireland will improve over the course of 2018 with particular focus on the prime and regionally dominant locations.

The Brexit uncertainty has softened retailers’ confidence to expand their portfolios and the omni-presence threat of online retailing to the traditional high street is now a permanent feature of the market.

Below (L–R) Castle Court Shopping Centre, Belfast and Nine Lanyon Place, Belfast

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In spite of this, we are confident that retailer demand for Northern Ireland will improve over the course of 2018 with particular focus on the prime and regionally dominant locations. Out-of-town demand will remain high with retailers like The Range, Lidl, M&S, TK Maxx and B&M expanding. Coffee shop / fast food sectors such as Tim Horton, Greggs and Caffe Nero are also continuing to expand in Northern Ireland.

Recent investment in key Northern Ireland schemes will see results. The letting strategies in parks like Castlecourt, The Junction, The Boulevard and Odyssey are starting to yield results and we expect to see a number of new lettings announced in the short-term.

INDUSTRIAL

2017 was an interesting year for manufacturing with some winners and losers. This included Bombardier, which had a tough year given its ongoing dispute with Boeing.

Owner-occupiers remain active but the supply of properties available to purchase is extremely limited and unlikely to improve significantly in the short-term.

Conversely, companies like Norbrook are performing strongly and recently reported a 14% increase in revenue coupled with investment in its £15m laboratory and manufacturing facilities. There are some reasons to be hopeful for improvements in the sector in 2018 given the phase two discussions between the UK and EU that will be ongoing throughout the year. Owner-occupiers remain active but the supply of properties available to purchase is extremely limited and unlikely to improve significantly in the short-term. This means that occupiers are considering design-and-build options, but to date we have not seen any construction. This is likely to change during the year and a number of design-and-builds will commence.

In the rental sector, the supply of properties over 50,000 sq ft (4,650 sqm) coming to the market looks set to increase. However, we are confident that demand levels will exceed that of 2017 and these will be snapped up quickly. This is due to the fact that those who wish to buy but cannot source a suitable property will be forced to expand through leased premises, at least on a short-term basis while they continue to search for a property to buy.

Below (L–R) Greenwood Business Park, Lisburn Bombardier Aerospace, Belfast

Northern Ireland

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News

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ALONE Partners

In 2017 we chose alone as our charity partner for the year. The charity was founded by Dublin Fireman Willie Bermingham 40 years ago. alone provides housing with support, support coordination, befriending and campaigns for change to hundreds of older people every week who are homeless, socially isolated, living in deprivation or in crisis. We launched our partnership in April with a charity auction, which raised €9,000. We followed the launch with a clean-up day, where 15 Lisney staff members volunteered at the award winning gardens at Willie Bermingham Place.

GAA Sponsorships

2017 was another busy year for our clubs. Lisney is proud to support several GAA clubs in Dublin including Ballinteer St Johns, Naomh Olafs, Templeogue Synge Street and Beann Eadair. We have been supporting Ballinteer St Johns since 2010 and are proud sponsors of the clubs weekly nursery. We also sponsor the clubs annual Mini All Ireland and have done so since the event started six years ago.

We also supported alone in their November book launch of “alone: the first 40 years”. Written by author and journalist Valerie Cox it was launched in the National Library of Ireland by Minister of State at the Department of Health Jim Daly T.D. On the Property Services side, we completed a valuation review of 120 of alone’s houses and negotiated an agreement to purchase 17 apartments in Dublin 8. The acquisition will be funded by the Housing Finance Agency. The purchase of these 17 apartments is expected to be completed in early 2018 and we are now seeking further purchase opportunities for alone to help continue their expansion not just in Dublin but in other urban locations around the country.

nursery and in the past year sponsored the ladies senior football team. We also support numerous activities in the club during the year including their annual Croke Park lunch where we have conducted the fundraising auction for the past two years. Our Terenure office sponsored the annual Templeogue Synge Street Mini All Irelands this year for the second year running. Our Howth Road office also took up sponsorship in 2017 with Beann Eadair in Howth.

Lisney has a long standing relationship with Naomh Olafs in Sandyford. We previously sponsored the clubs News

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Stephen Roche Grand Prix

Terenure 5 Mile run

RIAI Awards Sponsorship

In June the Stephen Roche Grand Prix, hosted by Orwell Wheelers, took place in Dundrum. Lisney was the main sponsor of the women’s race for the third year running. This is the only female race in Ireland where equal prize money is given to both men and women. The winner of this year’s race was Fiona Guihen.

In May, the Lisney Terenure office sponsored the ‘Terenure 5 Mile’ race for the third year running. Formerly known as the ‘Dublin 5 Mile Classic’, 2017 was the races 33rd year. The fast 1.5 lap course started and ended at Terenure College.

The RIAI Awards took place in the Mansion House on the 23rd of June. Lisney was delighted to sponsor the award for Commercial / Retail / Fit-Out, which was won by Malahide Market by PAC Studio Architects for Donnybrook Fair.

Seminars

In April the Lisney seminar, ‘Building Tomorrow’, brought together leading minds in the property market.

and Jonathan McCrea – awardwinning broadcaster and journalist.

The seminar was created to assess the state of the Irish property market with a focus on planning and the future of the market. Guest speakers included Fergal O’Brien – chief economist at ibec, Tom Phillips – planning Consultant

Facebook Case Study

2017 was an exciting year for us on social media when we became the first Irish estate agent to have a Facebook Live case study featured on Facebook. The campaign used Facebook Live to broadcast real time house tours of a variety of properties. Filmed on a mobile phone and conducted by Lisney’s agents, the Facebook Live viewings allowed potential homebuyers to view these properties from the comfort of their mobile or desktop. The trial proved to be a great success in terms of our reach on Facebook with views of over 110,000 and almost 2,500 engagements. We plan to further explore our use and improve the customer experience of this channel in 2018.

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On the residential side, Lisney hosted a second ‘Planning for the Future’ seminar in September for those considering downsizing. The event took place in Airfield, Dundrum with a keynote speaker from Amorys Solicitors.

Dun Laoghaire Regatta In July, Lisney sponsored a classic Dublin Bay 24 yacht at The Dun Laoghaire Regatta. The classic Dublin Bay 24 yacht called ‘Periwinkle’ had been restored to its former glory and was on view to the public throughout the event.

New staff members In 2017 Lisney recruited 16 new staff members across our business functions in both the Dublin and Cork offices, all of whom are already helping the company achieve new heights of success.

Lisney appoint four new Divisional Directors The four new Divisional Directors are Frank McSharry, Patricia Stokes, David McCarthy and Yvonne Kiernan. Commenting on the appointments, Duncan Lyster, Managing Director of Lisney said:

“I’m pleased to announce the promotions of Patricia, David, Frank and Yvonne. Their promotions are well deserved and are in recognition of their input, dedication and valuable contribution to the firm.”

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Cork News ALONE Friendly Call Cork, an affiliated partner of alone, was represented in Cork where Lisney staff volunteered their time with gardening and attended a cake sales. We also fundraised at Christmas time to provide hampers to some of the service users.

Belfast News Lisney Surveyor Wins Top Industry Award

Lisney Belfast Raises £20,000 for The Simon Community

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Lynn Taylor, a Chartered Surveyor at Lisney Northern Ireland has been named the Young Commercial Surveyor of the Year at The Belfast Telegraph Property Awards. Lynn received the accolade at the Belfast Telegraph Property Awards at Belfast’s Crowne Plaza Hotel. Lynn joined Lisney in 2015 and works between the firm’s Belfast and Dublin offices. A specialist in the telecommunications sector, Lynn takes the lead on Fixed Charge Receivership tender opportunities for Lisney.

The Lisney Belfast office raised £20,000 for the Simon Community through its charity partnership. Staff members supported Northern Ireland’s leading homeless charity throughout the last 18 months by organising a series of fundraising events. One fundraising highlight saw the Belfast Directors taking part in an overnight sleep-out on the street in front of the firm’s Montgomery Street base, which raised over £10,000.

Team

Team

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TRANSACTIONAL

CORK

NORTHERN IRELAND

Margaret Kelleher

Declan Flynn

Nicky Finnieston

David McNellis

Investment

Duncan Lyster

Managing Director

Christopher Belton

Divisional Director

Director

Managing Director, NI

Director

Offices

Peter Stapleton

James Nugent

Edward Hanafin

Gareth Johnston

Paul Hipwell

Maeve Furlong

Patricia Stokes

Ciaran O’Kane

Helen Moore

Frank McSharry

David McCarthy

Retail

Industrial

Emma Coffey

Cathal Daughton

Director

Divisional Director

Chairman

Divisional Director

Director

Divisional Director

New Homes

Director

Divisional Director

Divisional Director

Director

Development Land

Ross Shorten

Director

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Divisional Director

Director

Director

Director

RESIDENTIAL

ADVISORY

Professional Services

Email Addresses [email protected]

e.g. [email protected]

David Byrne

David Bewley

Brian Gilson

Ronan Diamond

John O’Sullivan

Adam Clarke

Yvonne Kiernan

Shane O’Beirne

Ciaran Cassidy

Darren Chambers

Tom Davenport

Director

Director

Divisional Director

Director

Divisional Director

Divisional Director

Director

Divisional Director

Director

Divisional Director

Commercial Rating

Property Management

Stephen Day

Divisional Director

Louise Kenny

Divisional Director

Michelle Kealy

Divisional Director

Rory Kirwan

Divisional Director

Ciaran O'Kane

Research

Marketing

Aoife Brennan

Siobhan Bunni

Director

Head of Marketing

Company Secretary

Robert Lawson

Divisional Director

Sharon Murphy

Director

Team

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Team

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Head Office St. Stephen’s Green House, Earlsfort Terrace, Dublin 2, D02 PH42 T +353 1 638 2700 E [email protected] Cork 1 South Mall, Cork, T12 CCN3 T +353 21 427 5079 E [email protected] Belfast Montgomery House, 29-33 Montgomery St. Belfast, BT1 4NX T +44 2890 501501 E [email protected] London 33 Cavendish Square, Marylebone, London, UK, W1G OPW T +44 203 7149055 E [email protected]

LISNEY.COM

Dundrum 11 Main Street, Dundrum, Dublin 14, D14 Y2N6 T +353 1 296 3662 E [email protected] Dun Laoghaire 106 Lower George’s Street, Dun Laoghaire, Co Dublin, A96 CK70 T +353 1 280 6820 E [email protected] Howth Road 171 Howth Road, Dublin 3, D03 EF66 T +353 1 853 6016 E [email protected] Leeson Street 103 Upper Leeson Street, Dublin 4, D04 TN84 T +353 1 662 4511 E [email protected] Terenure Terenure Cross, Dublin 6W, D6W P589 T +353 1 492 4670 E [email protected]