News & Research

Forecasters see little change in 2018, with the supply/demand imbalance continuing to affect both residential and commercial sectors while pressure intensifies on the commuter counties

Posted by admin on 23 Jan, 2018

Tina-Marie O’Neill

Sunday Business Post

Jan 21, 2018

Assuming that there are no major global geopolitical or economic shocks, it looks like the Irish property sector is shaping up to adopt a ‘steady as she goes’ approach for 2018.

Some 18 months after the initial shock of Brexit, widespread panic has surrendered to quotidian uncertainty – albeit never a positive for property or equity markets – which is becoming the “new, uneasy normal”.

Far more pressing for the Irish market this year, however, is the enduring issue of homelessness which will, sadly, continue to dominate headlines in 2018 as the demand for social and affordable housing stubbornly outstrips supply.

In more general terms, the value of construction projects coming on stream next year is broadly in line with last year’s figures.

The latest report from Construction Information Services Ireland identified some 542 key projects with a value of about €18.3 billion across all construction sectors and regions as having been recently submitted, approved, due to start on site or nearing completion in 2018. That compares to its forecast of 519 projects valued at €19 billion this time last year.

Of those projects, 104 are residential with a value of €2.7 billion, 52 are industrial with a similar value, while 85 are commercial, with only a slightly higher value of just over €3 billion. Five smaller sectors make up the rest of the projects.

The majority of the 542 projects – some 174 of them – are onsite, 135 have been granted planning permission, and 98 are out to tender. Not surprisingly, 294 of the projects, some €10.4 billion-worth, are located in Leinster, followed by 119 in Ulster, including Donegal, and 102 in Munster. (The detailed report is available to purchase from CIS Ireland).


According to Angela Keegan, director of, the supply/demand imbalance had a number of knock-on effects last year that will continue into 2018.

“There was a notable increase in first-time buyer activity in 2017 – driven by Help to Buy and the relaxation of the Central Bank lending rules,” said Keegan. “This is something we see intensifying in 2018.

“A knock-on effect of this is the increase in urban sprawl, particularly in Dublin. As first-time buyers become increasingly desperate to buy their own homes, the lack of supply and rising prices are forcing them out further and further.

“Our research has picked up notable price rises in the commuter belt, especially in counties Meath and Wicklow. One of the big downsides of urban sprawl is an alarming increase in commuting times, so while properties further out may be more affordable, there are quality of life costs.”

Keegan expressed concern about second-hand stock supplies, which she said were currently little more than 1 per cent of Ireland’s housing stock listed for sale.

“In a normal functioning market, this figure should be around 4 per cent,” she said. “Currently, we have about 20,000 second-hand properties on our site, a drop of 6.5 per cent on this time last year. We don’t see a whole lot changing on supply in the short term, but the recent Central Bank tweaking of ‘the exceptions to the LTV’ rule may curb price increases somewhat. We think prices will be up 8 per cent overall, with prices outside Dublin likely to hit double-digit growth, while in Dublin they’ll also be around the 8 per cent mark.”

It’s the same figure estimated by many leading real estate agents, including DNG’s head Keith Lowe and Lisney director and head of research Aoife Brennan, both of whom predict higher new homes completions in 2018, slowing price inflation in the second-hand market to between 7.5 and 8 per cent in the capital, down from about 11 last year.

When asked for his take on this year’s residential market, Killian O’Higgins, managing director of WK Nowlan Real Estate Advisors, said: “In 2018, nearly 50 years after man landed on the moon, Ireland will still not have learned to count the number of new houses delivered with any degree of certainty.

“Is it ESB connections or Goodbody’s BER assessments? Which is correct? What information will the Revenue have to offer based on claims for tax relief for new purchases in 2017? All rather worrying when one of the most pressing, largest and most expensive policy issues of our time – the housing crisis – is being discussed in a context where the accuracy of data is questioned. I predict that it would be easier to put a man on the moon again . . .”


“The market size for investment transactions in 2018 is likely to be north of €2 billion, as it was for 2017,” said HWBC managing director Tony Waters.

“Investors’ focus will continue to be Dublin offices. There is the prospect of some selective hardening of yields, but our base case view is that yields will stabilise in 2018.

“Limited availability and the search for return will lead to more investors widening their criteria to include out of town and regional assets in both offices and retail.”

Not surprisingly, the government’s decision to increase commercial sector stamp duty from 2 to 6 per cent in Budget 2018 was not well received by agents.

“As with other parts of the market, the reduction in the capital gains tax (CGT) hold period may encourage those who moved early in the market recovery to consider an early exit,” warned Brennan.

“Demand for good development sites will continue and it is likely that those suitable for build-to-rent schemes will intensify given the government’s amendments to apartment standards. Those suitable for purpose-built student accommodation will also be well chased.

“The changes to the CGT holiday in addition to the increase in the vacant site levy may mean that sites are brought to the market more quickly, which will be positive for supply this year.

“In offices, the biggest story in the past three years has been new office construction, and this is likely to be the case again in 2018 when new completions will rise to 20 buildings in the city and five buildings in the suburbs. What is notable about the city accommodation due this year is that about 55 per cent of it is already taken.”

“We don’t see the market reaching equilibrium in terms of supply and demand in Dublin offices until beyond 2019,” said Waters.

“New office construction is not sufficient to significantly improve choice for occupiers and, therefore, leasing terms will continue to harden. Headline rents will stabilise at €65 per square foot, and the co-working office trend will continue.

“Quality south city locations, including non-core Dublin 4, will see more significant refurbishment and repositioning activity at increasing but affordable rents compared to the CBD. Headline rents here will exceed €30 per square foot for the better quality.”

But O’Higgins said: “There is a lack of clarity on quoted headline office rents. Ignoring the impact of rent free and fit-out allowances is an issue and clear data is required. Demand will remain strong and support the current development pipeline. Increasing residential rents could have a negative impact on office rents as potential FDI investors look elsewhere, particularly as the corporate tax field may be levelling – as demonstrated by Facebook’s recent decision on tax and the tax changes in the US.

“I predict that landlords will still talk the big numbers, but Dublin’s long-term sustainable rent is in the €50/55 per square foot zone. Lower suburban rents will attract more tenant interest.”


On the retail sector, O’Higgins said: “The depth of our crash hides the true picture of retail – we are experiencing a significant revival in retail sales but numbers buying online are increasing.

“Well-positioned retail centres and streets continue to achieve rental growth, while secondary centres will struggle unless repositioned. As rental values increase, we predict that tenants will increasingly seek rents partially, or entirely, related to turnover.”

The office sector remained the backbone of investment transactions in Q4 2017, at 32 per cent of the value of turnover for the quarter, according to Joan Henry, head of research at PNB Paribas Real Estate.

However, investor interest, particularly from overseas, is across all asset categories of the Irish market, particularly when opportunities of scale are presented.

“Almost half of the €954 million transacted in Q4 2017 included a suburban shopping centre, a suburban office asset and the Gibson Hotel,” she said.

“In the retail sector, the sale of the Square shopping centre Tallaght for €233 million brings to €3 billion the amount of investor spend in Irish shopping centre assets over the 2016-2017 period, with €2 billion of that accounted for by five transactions.”


On a visit to Dublin last month, the head of global strategy at Aberdeen Standard Investments, Andrew Milligan, addressed the question of whether or not Irish investors should consider property assets in Britain.

“I suspect Brexit will take about a decade, all in,” he said.

“After the initial few weeks of Brexit panic, overseas investors found themselves 15 per cent richer and therefore able to buy more property in Britain. The London market is still advantageous to overseas investors.

“That said, valuations are not as attractive, but nor are they around the world compared to 12 months ago. Nothing in London is materially mispriced. Certainly the market is slowing – not because of Brexit but because the British economy is not growing as quickly.

“Brexit is a long way down the list of risks for 2018. It will have an impact on the British economy and markets, but that will not happen globally. It’s just not as important.”

However, in an address at CBRE’s Outlook 2018 presentation at the RDS last week, guest speaker John McGrane, the director general of the British Irish Chamber of Commerce, took a different view.

“On June 23, 2016, Britain took back the right to control which foot to shoot itself in and promptly shot [Ireland] in the foot,” he said.

“Many in Britain feel Brexit is going very well so far, but investment is slowing and debt is increasing. There is no money to soften the economic blow that’s coming . . . Current EU sentiment towards Britain is toxic. The EU is in no mood for compromise and it knows how to hurt Britain.

“A bad outcome for Britain in the coming negotiations is a bad outcome for Ireland too, given our food and tourism industries’ dependence on the British market. But there are great opportunities out of this. We need to make sure we don’t waste a good crisis.”

Milligan said: “In general, 2018 will be steady and cautious. The European Central Bank and all central banks are being very boring, telling us what they’re doing next year, being transparent, etc.

“But it is 2019 that will be a very interesting year for Europe. The ECB has indicated that it will increase interest rates at some point in 2019, assuming the current recovery continues and we move from negative to positive interest rates.

“At that point, how will capital flow? Will companies invest more domestically? Will small central bank changes lead to major cross-border flows?

“The probability of recession is low and as long as it remains low, real estate is attractive.

“It’s an asset that provides a relatively high yield in a world of negative, very low interest rates and there are some opportunities for capital growth still. However, rental yields will probably drive property now, more so than capital growth.”