Demand for real estate in Dublin from overseas companies – no doubt boosted by the boom in tech jobs in the city and the retail recovery – has resulted in Dublin being ranked in the top three European cities for real estate investment for the third year running.
The bad news: the shortage of office space is forecast to continue for several years, placing pressure on inward investment companies and start-ups to find space.
The latest PwC/Urban Land Institute (ULI) Emerging Trends in Real Estate Europe 2016 study, published today (13 January), reveals that Dublin is attracting plenty of capital investment, which is driving demand for new property.
Dublin ranked third after Berlin and Hamburg, which are also benefiting from an influx of the creative and technology sectors driving the strongest office uptake these cities have ever seen.
‘There has been a pretty rapid recovery and people are seeing a real shortage of prime office space in Dublin’
– TIM O’RAHILLY, PWC
However, the consensus among respondents is that the Irish capital has already reached its peak for opportunistic returns. Those who have already invested in the city or who choose to invest in the very near term are likely to see the highest total returns.
Dublin offices are expected to see rental growth, but the demand for increased office space is unlikely to be satisfied for several years.
In addition, Dublin’s retail recovery has just started and the city has seen a large volume of capital seeking to acquire retail assets.
“There has been a pretty rapid recovery and people are seeing a real shortage of prime office space in Dublin,” said Tim O’Rahilly, PwC Ireland’s real estate partner.
“There is also a huge shortage of new residential units and, with prices expected to continue to increase, purchasing is out of reach for a lot of people. We are seeing significant institutional investor interest in buying end product and the expectation is that this will continue for the medium term.
“Development, however, is taking a while to get fully moving. Those seeking higher returns will now have to take on more risk. Opportunities can still be found in the development space but this may involve buying debt rather than land, with investors being prepared to work with the existing landowners.”
Disruptive forces of technology, demographics and social change
Across Europe, the disruptive forces of technology, demographics and social change, along with rapid urbanisation, are changing the European real estate chain and, as a result, investors are focusing on cities and assets rather than countries.
This is also visible in investors demonstrating more interest in alternative, operational sectors that have benefited from rapid urbanisation and demographic shifts, such as healthcare, hotels, student accommodation and data centres.
Development is also expected to create value in 2016, with 78pc of respondents citing development as an attractive way to acquire prime assets. More progressive developers and investors are innovating in an attempt to meet the needs of increasingly informed and demanding occupiers.
“Investors are getting more creative in trying to access future prime assets at reasonable prices through more focus on alternatives and development,” said Urban Land Institute Europe CEO Lisette van Doorn.
“They take more risk on in the short-term to fulfil their long-term objective for core assets. At the same time, more and more players in the real estate industry are starting to address the needs of occupiers, who are seeking harmony between their workplaces and their lifestyle needs.
“Some of the industry’s biggest challenges right now are how to become less about brick and mortar and more about service and the implications this may have for the traditional business models of real estate operators,” van Doorn added.
Dublin image via Shutterstock
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