Source: Knight Frank.

Knight Frank reports that prime Dublin office yields have tightened to 3.75% at March 2021 (March 2020: 4%), given the level of competitive demand in the market for the best Dublin office assets, though other agents remain at c.4%. CBRE states that despite some uncertainty about the future of the office, which is unlikely to dissipate until such time as the majority of office workers return to their buildings, the office sector remains the preferred sector for institutional investors in Europe with most focussed on securing core and core-plus opportunities. PRS investment activity has continued to be robust. In 2020, the sector comprised 38% of overall investment (2019: 33%) and in the first quarter of 2021, it comprised 60% of investment (Q1 2020: 15%) (source: Knight Frank). In its Spring 2021 yield matrix, Cushman & Wakefield reports that PRS yields for prime Dublin properties remain stable within a range of 3.75-4.25%. Top five PRS investment transactions (12 months to March 2021)


Building                                        Price   Price per    Buyer                               Buyer 
                                                        unit                                             nationality 
Confidential portfolio, Dublin/Kildare          EUR450m   Confidential Ardstone                            Irish 
Cheevers Court & Halliday House, Dun Laoghaire  EUR195m   EUR530k per    SW3/DWS                             German 
                                                        unit 
The Prestige Portfolio, North Dublin            EUR145m   EUR457k per    SW3/DWS                             German 
                                                        unit 
Off-market portfolio, North, South & West       EUR140m   Confidential GIC/Orange Capital Partners         Singaporean 
Dublin suburbs 
Blackwood Square, Santry, Dublin 9              EUR124m   EUR416k        Quad Real Property Group/Roundhill  Canadian 
                                                                     Capital 
Top five total                                  EUR1,054m 

Source: Knight Frank.

In the 12 months to 31 March 2021, the MSCI Ireland Property All Assets Index (the "Index") delivered a total property return of -1.5%, excluding Hibernia (March 2020: 4.4%). Over this period the Industrial sector has been the top performer in the Index, with a total return of 11.0%, followed by the "Other" sector (which includes PRS) at 4.7% (March 2020: 7.7% and 4.2%, respectively). Offices delivered a total return of 1.2% (March 2020: 6.3%). Hibernia's Total Property Return over the same period was -0.2%, outperforming the Index, excluding Hibernia, by 1.3 percentage points. Dublin office occupational market

Following a strong start to 2020, the onset of the pandemic resulted in a significant slowdown in letting activity. Total take-up was 1.5m sq. ft., a decline of 54% on 2019, with 0.8m sq. ft. of this coming in Q1 2020, before the pandemic took hold (source: Knight Frank). Unsurprisingly, demand was driven by sectors which have continued to generate economic and employment growth: 64% of take-up was from the multinational-dominated TMT sector (2019: 55%). Only five letting transactions for more than 50,000 sq. ft. occurred in 2020, compared with 12 transactions in 2019. The city centre continued to be occupiers' preferred location choice, accounting for 51% of volumes in 2020 (2019: 68%) (source: Knight Frank), and this figure was somewhat lower than usual due to one particularly large letting in the suburbs of 0.25m sq. ft. that completed in Q1 2020. With the highest level of COVID-19 restrictions in place for the whole of Q1 2021, including the closure of construction sites and a ban on property inspections, the Dublin office market saw the lowest quarterly take-up on record with <0.05m sq. ft. transacted (Q1 2020: 0.8m sq. ft) (source: Knight Frank). Top 10 office lettings (12 months to March 2021)


Tenant        Sector  Building                                     Area (sq. ft.) % of total take-up 
Amazon        TMT     2 Burlington Plaza, D4                       76k            10% 
Microsoft     TMT     3 Dublin Landings, D1                        44k            6% 
HSE           State   1 Heuston South Quarter, D8                  44k            6% 
OPW           State   1GQ, George's Quay, D2                       42k            6% 
Gilead        Pharma  North Dock 2, D1                             31k            4% 
Ryanair       Other   230/240 Airside Business Park, North Suburbs 30k            4% 
3M            TMT     2 Cumberland Place, D2                       24k            3% 
OPW           State   Paramount Place, North Suburbs               24k            3% 
Rabobank      Finance 76 Sir John Rogerson's Quay, D2              24k            3% 
Twilio        TMT     78 Sir John Rogerson's Quay, D2              20k            3% 
Top 10 total                                                       358k           49% 

Source: Knight Frank. Please note Hibernia classifies 3M as 'healthcare' or 'other' in its industry classification.

Our active demand tracker, run in conjunction with Cushman & Wakefield, saw a c.30% fall in active demand to 2.3m sq. ft. between February 2020 and December 2020. The first signs of a recovery are now beginning to emerge, with 2.7m sq. ft. of active demand at the end of March 2021, representing a 17% increase on the position at the end of December 2020. CBRE notes that several requirements that had been on hold have been reactivated and some new requirements initiated. Although the intensity of the requirements (i.e. how soon the occupiers want the space) remains relatively low, indicating occupier caution, it is encouraging to note that CBRE is reporting approximately 0.5m sq. ft. of reserved office space at the end of March 2021, which bodes well for leasing activity as COVID-19 restrictions ease. Recent figures from the CSO show that in the final quarter of 2020, the technology sector recorded an annual increase in employment of 9%. Looking solely at Dublin, the sector saw an annual increase in employment of 4%, equating to 3,000 additional people employed. This trend is being translated into active demand for office space, with approximately 30% of active demand at March 2021 coming from the technology sector.

The overall Dublin office vacancy rate (which includes "shadow" or "grey" space) increased to 9.9% at 31 March 2021 from 6.5% at 31 March 2020. The Grade A vacancy rate in the city centre, where all of Hibernia's office portfolio is located, was 9.8%, up from 5.9% at 31 March 2020 (source: Knight Frank). Of the 3.4pp increase in overall Dublin office vacancy since 31 March 2020, 1.8pp related to 0.8m sq. ft. from un-let new buildings completing and 1.2pp related to 0.5m sq. ft. of grey space coming back into the market as tenants offered surplus space for sub-leasing: the remaining 0.4pp came from lease expiries. Knight Frank estimates that approximately 0.25m sq. ft. of space could potentially come to the grey space market in the next six to nine months, driven by space being made available by the banking and public sectors. The main agents have marked down their headline prime Dublin office rent assumptions by 7-10% and are also suggesting increased tenant incentives in some cases. Knight Frank reports that prime rents in Dublin currently stand at EUR57.50psf (Mar-20: EUR62.50psf). Office development pipeline

We currently expect 7.5m sq. ft. of gross new space to be delivered between 2021 and 2024 for the whole of Dublin (none completed thus far due to the recently lifted lockdown), of which 83% will be in the city centre. 45% of office stock under construction in Dublin has been let or reserved (46% in the city centre), meaning there is 2.6m sq. ft. under construction but not yet let (2.1m sq. ft. in the city centre). Since we reported in May 2020, the expected supply in Dublin between 2020 and 2023 is down 7% to 7.1m sq. ft. and the expected supply in the city centre over the same period is down 2% to 5.6m sq. ft. (source: Knight Frank/Hibernia).


Year          Dublin city centre supply  All Dublin supply 
2021f         1.5m sq. ft. (79% pre-let) 1.7m sq. ft. (73% pre-let) 
2022f         1.7m sq. ft. (42% pre-let) 2.1m sq. ft. (43% pre-let) 
2023f         1.6m sq. ft. (28% pre-let) 1.8m sq. ft. (26% pre-let) 
2024f         1.4m sq. ft. (28% pre-let) 1.9m sq. ft. (21% pre-let) 
Total 2021-24 6.2m sq. ft. (44% pre-let) 7.5m sq. ft. (40% pre-let) 

Source: Knight Frank/Hibernia. *Note: There have been no development completions so far in 2021 due to the recently lifted lockdown. Residential/PRS

There were 20,700 new home completions in 2020, down 1.9% on 2019 (source: the ESRI). This was a good outcome given the various pandemic restrictions, but nevertheless represented the first year-on-year decline since 2012, putting Ireland even further behind the estimated natural demographic demand for at least 34,000 units per annum (source: the Central Bank of Ireland). For 2021, the restrictions in effect for the first four months of the year, under which most construction work was no longer deemed essential, are likely to have had an adverse effect on overall housing supply. The ESRI expects 15,000 units to be completed in 2021 and 16,000 in 2022. Dublin accounted for 29% of all Irish delivery in 2020, slightly below the 33% proportion recorded in 2019, and when combined with the commuter counties around Dublin, the Greater Dublin Area ("GDA") accounted for 50% of Irish completions in 2020 (2019: 55%) (source: the CSO). Within the GDA, houses accounted for 69% of completions and apartments for 31% in 2020, still far from the aspirations of the Ireland 2040 plan for compact urban growth. At 19% of total completions, apartment building in Ireland is running at the lowest level of any EU member state, with the average being 59% (source: the European Commission). Knight Frank estimates that there continues to be EUR3bn of capital looking to deploy into PRS in Ireland and this is likely to keep prime yields in the sector stable

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May 26, 2021 02:03 ET (06:03 GMT)