The industrial sector was the star performer of the commercial property market in 2021.
Investment in the industrial property sector hit €1bn in 2021, the highest level ever, according to a new report from Lisney.
Driven by the requirements of retailers as well as logistics and pharmaceutical companies to secure additional accommodation to meet e-commerce demands, this €1bn is equivalent to the industrial investment market turnover for the previous six years combined.
“While 2021 was a year of significant change, the Irish property market proved exceptionally resilient in spite of the ongoing and seemingly relentless challenges Covid-19 continued to present”
Overall, the sector accounted for 18% of turnover in the investment market in 2021 and if additional supply had been available this figure would have been higher given the level of capital chasing opportunities.
Lisney said that industrial property rents in Dublin grew by 9% in 2021 and this growth will continue in 2022. The company also states that landlords are securing lease terms of 20 years with break options likely to move out to year 15 in 2022.
The Lisney Outlook 2022 also outlines that the overall Irish property investment market registered a turnover of €5.5bn in 2021, the second-largest year on record for the property investment market, only 9% below that of the record-breaking 2019.
With on-market supply relatively limited throughout the year, off-market sales accounted for 51% of turnover and generally related to larger deals.
The top three areas of activity in the investment market for 2021 were:
PRS (Private Rented Sector) – this activity dominated investment market activity in 2021, registering €2bn in turnover, equating to 39% of all investment spend. This brings the 10-year investment total in PRS to over €8.5bn.
Offices – 28% of investment spend in 2021 was in the office market, and at over €1.5bn was the second largest investment in the sector in the last six years. These figures indicate confidence that the office has a significant role for companies going forward despite many employees now working from home.
Industrial – 18% of market turnover (€1bn) in 2021 related to industrial investments, making it the strongest year ever for industrial investment spend.
Rising ESG trend
A further key trend in 2021 that will continue into the years ahead is a growing awareness of Environmental, Social, and Governance (ESG) criteria across all property sectors from both an investor and occupier perspective.
ESG is most prevalent in the office sector, particularly important for multinationals and publicly quoted companies. Staff wellbeing, along with business commitments to sustainability and the environment will mean that most of the larger occupiers with space requirements will look towards newer buildings.
Currently, flexibility is the trade-off with older buildings, however, moving forward, there will likely be a two-speed rental market and a widening in the gap between rental packages achieved on new and older accommodation.
With sustainability continuing to be in focus, many funds may potentially be forced into either redeveloping or significantly refurbishing older buildings to achieve better performance levels or sell the properties and allow someone else to do it. In the office market, this could lead to a widening of the pricing gap between new and older buildings. Investors will also become more focused on the business activities carried out by tenants, how they are handling their own ESG policies, and if this is aligned with the fund and investors.
“While 2021 was a year of significant change, the Irish property market proved exceptionally resilient in spite of the ongoing and seemingly relentless challenges Covid-19 continued to present,” said Aoife Brennan, director of Research at Lisney.
“Firstly, we saw that life in the office is not over. We still value the importance of in-person interaction with our colleagues both professionally and socially. The introduction of Working From Home and the establishment of more hybrid working means working environments will need to become more appealing to attract and retain staff, not just in the office but also the external environment, connecting with the community and social amenities nearby.
“Similarly, many thought that physical retail would never make a recovery once shops were allowed to open once again and yet they did. That said, the dramatic increase in online shopping has placed a vastly increased need for industrial and logistical space and this will continue into the year ahead. 2021 also saw some of the most significant sales of licensed and leisure premises in almost two decades and we were delighted to be the agents of some of the highest value off and on market transactions this year.
“Where we live also became more important, with the second-hand residential market and letting market performed exceptionally strong this year. We noticed a trend of lifestyle purchasing as many opened their search wider out along the coast instead of an absolute requirement to be close to the city centre for proximity to offices.
“Housing policy was very much to the fore last year and as initiatives, particularly from Housing for All, are actioned in the years ahead, impacts will be seen in the development land, new homes, PRS and social and affordable housing space,” Brennan said.