Our key trends, insights & predictions for the year ahead - JLL Ireland
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JLL Ireland | January 2018 Research Report Jones Lang LaSalle Our key trends, insights & predictions for the year ahead Supporting Copy
The View From JLL
12th January 2018
The View From JLL Up until recently, 50,000 sq ft was considered as a
large letting for Dublin, but now, 100,000 sq ft has
Key Trends, Insights and Predictions for become the new large category. There were 9 deals in
2018 2017 which fell into this new larger category, which is
the same as the combined total for the last 5 years.
Offices In terms of location, demand has been focused on the
city centre. Suburban demand has been steady, and
2017 has been spectacular year for the office market
in the second half of last year focused on
in Dublin, with take-up of 3.5 million sq ft, the highest
Leopardstown and Sandyford, with the opening of
ever recorded. We are expecting the strong demand
Microsoft’s new 400,000 sq ft HQ this year acting as a
we saw in 2017 to continue into 2018, with activity
magnet for demand.
driven by large existing occupiers who are expanding.
Occupier requirements are also changing. They are
Brexit has been overstated, with limited deals
now demanding different types of spaces with
transpiring in 2017. Strong take-up has instead come
technology driving the way to enable new ways of
from companies with an existing base in Dublin that
thinking and working. One such example has been the
are expanding. Examples include Indeed, JP Morgan,
rapid expansion of the flexible offices sector in 2017.
Verizon, Google, Facebook, AIB and LinkedIn. These
The trend is expected to continue in 2018. This should
companies are responding to strong performance in
not be seen as a threat to landlords, rather an
this market with high-paced growth. There are a
opportunity to lease buildings to the co-working /
number of companies in the market for space,
flexible companies. For large corporates across all
including IDA, Wish.com, Salesforce, Huawei, Udemy,
sectors an emerging trends is that, in addition to their
Depfa Bank, WeWork, Office Group, LogMeIn, Delphi
‘traditional’ leased space, they are also taking flexible
Technologies and Eversheds. These companies are
space to allow for future flexibility and growth. JLL
focusing on larger-sized expansions.
global research predicts that flexible and co-working
Dublin Office Annual Take-Up space could reach 30% of corporate portfolios by
2030.
4
Supply in the offices sector is expected to remain tight
Take-Up (million sq ft)
3 this year. Although there are a number of schemes
totalling close to 5 million sq ft currently on site, only
2
1.7 million sq ft of this will be delivered this year, and
with almost a third of this already let. We are
1
expecting to see most new schemes delivered this
- year let before completion. Pure pre-lets are rare in
2013 2014 2015 2016 2017 the Dublin market, but mid-lets part-way through
Source: JLL Ireland construction are set to continue. Take-up will be
dominated by these types of deals which means that
corporates will have to be quick off the mark to
ensure they get the best new space in the market.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 2
The View From JLL
The suburbs will offer additional supply pipeline for (e.g. American Apparel, Aeropostale, American Eagle),
occupiers that are happy to look outside of the city. and this may continue throughout 2018.
There are a number of large-scale buildings either
Food and Beverage will remain strong, and focused
under construction or due to start on site in 2018. One
on prime or just off-prime high streets, and prime
South County, is an example of this. Once
schemes that have existing footfall. For schemes, F&B
construction is well underway we would expect the
is now becoming a key differentiator for attracting
space to generate strong interest. Many new buildings
retailers and brands and also for attracting
across Dublin that have begun speculative
consumers who are now looking for greater
development have progressed to exclusive
experiences when they are going shopping. A word of
negotiations with clients prior to completion. Tenants
caution however, oversupply of F&B in some
tend to need to see activity before committing.
locations will create some risks and difficulties,
Dublin prime rents have already experienced a period particularly in locations where food has been used to
of significant growth and therefore we are expecting mask rising vacancy. Locating F&B in centres
rents to remain steady this year with current levels at therefore requires clever asset management to
€55 - €65 per sq ft and €25 - €30 per sq ft in the ensure a balanced mix.
suburbs.
Retail
Retail is currently a stratified market, with prime
preforming well and poor secondary and tertiary
struggling in comparison. There are active retailers
looking for space but demand is patchy and not
consistent. There is some nervousness from retailers
caused by number of factors: comparatively
expensive rents compared to other cities in Europe,
Source: JLL
the Trump effect, and Brexit.
Retail demand will continue to be dominated by a few The changing role of technology and demands of both
key brands that are operating under multiple fascias consumers and retailers is leading to a more
(e.g. Inditex, H&M Group). Their demands are experiential type of retail. This is particularly
changing from a broad, multiple-store approach, to important given the threat that retailers are now
one that is focused on having fewer larger stores but being faced with from online and Ecommerce. Figures
in the best locations. from An Post show that it delivered 1.74 million
parcels in the five week lead-up to Christmas 2017 - an
Whilst there is a long list of active retailers who are
increase of 27% on the same period in the previous
looking in the market, we are finding that they are
year. Retailers are set to continue to address this
cautious to commit to a deal. Active occupiers in
threat by focusing on multi-channel experiences. We
Ireland include: Rapha, Gap, L’Oreal, Estée Lauder,
are therefore expecting to see real change in retail in
Hotel Chocolat, Rituals, Cath Kidson, Under Armour,
the next 12 months as the sector adapts to the rapid
Abercrombie & Fitch, Anthropologie plus many more.
pace of changes set by global consumer and retailer
On the other side of this though, there is also evidence
expectations.
of some retailers who are starting to leave markets
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 3
The View From JLL
Supply is tight in key schemes and high streets with
limited vacancies, particularly in key size categories.
Despite this we are seeing some units remain on the
market for longer than we would expect, even in
prime locations. Prime supply is therefore sporadic
and is dependent on individual units and schemes,
and especially sizes, with no real trend running
throughout. There may be some degree of vacancy in
2018 but this will be determined by demand. If is it
shallow and selective, there may be more units Source: JLL Ireland
vacant and for a longer period of time. In addition to this sector, the early indications suggest
Supply for retail, unlike some of the other sectors, is that the Food & Beverage sector together with
expected to mostly come, not from new builds, but Pharma / Medical and Tech Centres (including Data
from tenants vacating. As a market, it is self-supplying Centres) will make an impact.
as tenancy breaks and expiries release space on high Equally the demand for space created by the growth
streets and in schemes. This is where you could in online retail shows little sign of abating. We
expect to see landlords generate value, not through anticipate that much of this demand is going to be
new bricks and mortar, but through upgrading focused at what has traditionally been thought of as
existing supply that comes back onto the market. the larger end of the market in terms of size.
Retail rents across all sectors are set to remain steady, For existing stock, the momentum appears to be
with some growth across primary / good secondary away from owner occupation and leasing activity now
retail sector. Prime retail parks in particular are set to more dominant, with the exception of older stock
continue to show strong growth, along with more which is more frequently sold. Lack of owner-
modest growth for some good secondary parks. occupier activity this year is expected due to stringent
lending restrictions. For 2018, we anticipate that up to
60% of the transactions will be by way of lease.
Industrial
At a very basic level, there is not the capacity in the
Demand remains reasonably healthy in the industrial market to supply large volumes of space. At the peak
sector. Last year, JLL were cautiously optimistic and of the market, we estimated that there were about 35
suggested that while quality demand was relatively active industrial property developers. Currently there
thin, we expected headline rents to come in at around are 3 with the probability that a further 3 will enter the
€9.00 per sq ft, with some limited degree of pre-let market in the course of 2018. Not surprisingly this will,
and speculative activity. in itself, lead to a more sustainable supply than
2006/2007, which when coupled with the demand
By and large this seems to have been the outcome at
factors outlined earlier, should help underpin values
year end and in broad terms we anticipate that 2018
through 2018.
will continue the recovery progress the sector made
through 2017. As a result, we anticipate supply will remain tight
through 2018 with three speculative schemes on the
Our expectation is that demand will continue to come
south west side of the city and a further three on the
from the large international 3PL sector, albeit that the
north side, generally focused around the Airport area.
decision making process tends to be a little slower
than their indigenous counterparts.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 4The View From JLL
Rents are set to continue to increase for Industrial, importantly, do not wish to buy. We anticipate that in
caused by an absence of supply and continued Dublin, as part of this generational shift, 20-30
growth in demand. Industrial is likely to be the something’s will want to keep their existing standards
strongest market for rental growth in 2018, with our of living, for which they are happy to compromise, by
forecasts showing an average of 4% per annum for staying in rental properties. Whilst there are many
the next three years. that cannot afford to buy, there is a section of the
market making a conscious decision, which is based
on prioritising high quality lifestyle choices. Welcome
Residential to generation rent.
Demand remains strong across all residential sectors The Government introduced a number of measures in
and all size categories and supply is a huge issue, with the Budget in an attempt to help the residential
low stock levels for both sales and lettings, causing sector. Whilst some measures were an effort to
prices and rents to rise. encourage development activity through extra
finance and taxation to support supply, they still
With all-time-low levels of availability of rental stock,
missed the point about development, and in
something we are expecting to see as a result of this
particular the economics of development. The main
is an increase in demand for alternative types of
issue is not the supply of land, but that the cost of
residential space and developers. This includes a rise
development still does not make economic sense in
in PRS large-scale developers and forward funding of
many cases, with taxes, land costs, building material
build-to-rent development. We also expect the arrival
costs, plus also issues with labour shortages, being
of Co-Living space in Dublin which is already a
the main issues impeding development.
popular model across other European capital cities,
this model involves having your own bedroom, but One positive from the rising sales prices is that
sharing a bathroom, kitchen and living space. development is creeping closer to financially viable
levels for developers, which will further increase stock
levels for the year to come. There is still more that
could be done. JLL would call upon the government
to introduce some immediate measures to help
increase supply levels as currently we predict it could
take 5-7 years to help solve the demand / supply
imbalance.
Looking at one portion of the market, first time
buyers, are seeing increasing supply of homes due to
the continuation of the help-to-buy scheme. Supply,
whilst still limited, is expected to rise in 2018 in this
Source: JLL Ireland
portion of the market.
Looking to 2018, but also further ahead, we also In the last weeks of 2017 the Minister for Housing
expect there to be a generational shift in the announced that he will be introducing a change in
residential market, particularly in terms of ownership building heights in the future and also removing the
levels. Gone are the days of 80% ownership, or Ireland need for basement car parking in certain schemes
having the highest ownership levels in Europe, and that are within close proximity to transport links. We
welcome to a market where 40-50% are renting need immediate clarity from the Housing Minister
because they cannot afford to buy, or more
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 5The View From JLL
around these plans so that it does not stall global markets. A local impact we may see as a result
development activity. of this is greater demand for office space in Cork or
other strong-performing regional markets, mirroring
Rents and values remain under pressure and are
movements of the occupier market. Following a move
expected to continue to trend upwards. We would
by Facebook to occupy a building in Cork, we
predict to see growth at similar levels to 2017 of 8-
subsequently saw Realis then invest in the Cork office
10% in capital values and expect to be back at Celtic
market, joining Green REIT who acquired there in
tiger prices by 2020. For rental values, we predict
recent years.
growth of 6-8% in the next 12 months as the
introduction of the rental cap may put some limit on Looking aside from offices, as per 2017, logistics are
rapid rental increases. expected to be the star performer again this year.
Logistics in this sense relates to prime, new facilities
used by global logistics providers, and not smaller-
scale industrial operations.
Investment
We expect a drop in retail activity, not caused by a
Demand for Irish investment opportunities will lack of demand, but limited availability of
remain strong this year, with similar volumes to 2017 opportunities. Over €5 billion of retail investment,
of around €2 billion. Investor demand will be varied which includes all major shopping centres, has
and dependant on the profile of the investor and we changed hands in the last 3 years and is unlikely to re-
are expecting to continue to see new and more trade again in the short-term. That said, should any
sophisticated entrants to the market. prime opportunities come on to the market this year,
particularly high streets and in particular Grafton
2017 Investment Volumes by Sector
Street, they will be met by very aggressive and
Office competitive bidding.
Retail Alternatives are still the focus of demand from some
Mixed Use
investors, but with supply shortages across all
sectors, any well-located, well run schemes are to be
Residential met with strong interest and pricing. On the
Industrial residential side, there is very strong demand for PRS
and student accommodation but due to limited
Hotel
supply opportunities, future assets that come for sale
Other in these sectors will be met with aggressive pricing
Source: JLL Ireland
and deep interest from both domestic and overseas
buyers.
Hotels continue to perform steadily with solid market
Activity for offices is likely to continue to be focused
fundamentals such as tourist numbers and
on new builds, with continued demand for shiny new
operational performance e.g. room rates and
steel and glass blocks. There may be limited large-
occupancy, which are all trending upwards, and
scale opportunities for this type of asset, although
reinforcing interest on the investment side. Volumes
further forward-funding opportunities are expected.
are to remain steady this year, with off-market deals
As we enter 2018, and with deals closing at sub-4%,
driving activity, plus strong demand for pre-lets and
Dublin may be starting to become too expensive for
hotel leases.
overseas investors compared to other European and
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 6The View From JLL Healthcare is also performing steadily, although 2017 was slower than expected. It is increasingly becoming an institutionally acceptable asset class in Ireland, particularly nursing homes, which are attracting a lot of overseas attention. We expect further activity in 2018 as demand is evident, but this will be dependent on supply. Although there will continue to be limited larger-sized deals, we are expecting some supply to come on to the market as a result of a shortening to the capital gains tax exemption period (from a 7 year hold period to 4 years) in the Budget. This will help to extend the market cycle, or at least catalyse some recycling activity somewhat for purchasers that were active at the start of the latest cycle. Looking at values, they are forecast to remain steady across 2018, although there may be some yield compression in specific cases that warrant it e.g. a prime new office building, clever asset management or refurbishment. COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 7
The View From JLL
JLL Directors and Department Heads
John Moran Conor O’Gallagher
CEO Director
Head of Investment Head of Residential
john.moran@eu.jll.com conor.ogallagher@eu.jll.com
Margaret Fleming Des Lennon
Director Director
Investment Head of Development Land
margaret.fleming@eu.jll.com des.lennon@eu.jll.com
Max Reilly
Pauline Daly
Director
Director
Investment
Head of Valuation Advisory
max.reilly@eu.jll.com
pauline.daly@eu.jll.com
Deirdre Costello
Director Andrew McCracken
Head of Office Agency Director
deirdre.costello@eu.jll.com Head of P&DS
andrew.mccracken@eu.jll.com
Fionnuala O’Buachalla
Director Michael Miland
Head of Tenant Rep Director
fionnuala.obuachalla@eu.jll.com Head of Property Management
michael.miland@eu.jll.com
Stephen Murray Hannah Dwyer
Director Divisional Director
Retail Agency Head of Research
stephen.murray@eu.jll.com hannah.dwyer@eu.jll.com
Lisa McGrane Dan O’Connor
Director Senior Vice President
Retail Agency Head of Hotels
lisa.mcgrane@eu.jll.com dan.oconnor@eu.jll.com
Nigel Healy
Director
Head of Industrial
nigel.healy@eu.jll.com
COPYRIGHT © JONES LANG LASALLE IP, INC. 2018. All Rights Reserved 8JLL Styne House Upper Hatch Street Dublin D02 DY27 +353 (0)1 673 1600 www.jll.ie www.jll.ie/research @JLLIreland About JLL About JLL Research JLL (NYSE: JLL) is a leading professional services firm that JLL’s research team delivers intelligence, analysis and specializes in real estate and investment management. A insight through market-leading reports and services that Fortune 500 company, JLL helps real estate owners, illuminate today’s commercial real estate dynamics and occupiers and investors achieve their business ambitions. identify tomorrow’s challenges and opportunities. Our In 2016, JLL had revenue of $6.8 billion and fee revenue of more than 400 global research professionals track and $5.8 billion and, on behalf of clients, managed 4.4 billion analyse economic and property trends and forecast future square feet, or 409 million square meters, and completed conditions in over 60 countries, producing unrivalled local sales acquisitions and finance transactions of and global perspectives. Our research and expertise, approximately $136 billion. At year-end 2016, JLL had fuelled by real-time information and innovative thinking nearly 300 corporate off ices, operations in over 80 around the world, creates a competitive advantage for our countries and a global workforce of more than 77,000. As clients and drives successful strategies and optimal real of December 31, 2016, LaSalle Investment Management estate decisions. has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. www.jll.ie Jones Lang LaSalle ©2018 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document has been compiled from sources believed to be reliable. Neither Jones Lang LaSalle nor any of its affiliates accept any liability or responsibility for the accuracy or completeness of the information contained herein. And no reliance should be placed on the information contained in this document.
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