A booming economy, rising rents and continued low interest rates drove spending on income-producing property in Ireland to €2.28bn in 2017.
While the supply of investment product is tightening, Dr. John McCartney, Director of Research at Savills, says that there are still plentiful opportunities for investors to deploy capital in Ireland. While this is 30% above the 15-year average it represents a considerable slowdown compared with 2016 when two blockbuster sales – of Blanchardstown and Liffey Valley Shopping Centres in Dublin – propelled turnover to just under €4.5bn.
The slowdown in spending reflects the fact that, after 4 years of very brisk trading, many investment properties are now in stable long-term ownership. To put the sheer volume of investment activity in perspective, one third of Dublin’s office stock, and all 6 of its major suburban shopping centres, have changed hands since 2013.
John McCartney says: “re-trades of assets bought earlier in the cycle will provide ongoing opportunities for investors. These include individual assets and properties which were packaged within portfolios that are now being broken up. The speculative development pipeline is also now producing buildings which will be completed, let and sold off as investments.”
Illustrating the potential supply that could still come from re-trades Savills analysis shows that private equity funds have purchased €2bn more than they have sold in recent years. With these buyers typically targeting a 3-5-year hold, divestment by private equity players should continue to produce opportunities for others in the coming years. With more limited availability of standing investments, investors are increasingly focusing on development assets. Some are directly developing their own buildings. Others are pre-purchasing assets that are yet to be built, or are pre-funding developers to build properties for them.
John McCartney explains: “Either by providing direct funding, or by making development projects ‘bankable’, these forward commitment contracts have facilitated considerable development that would otherwise have been difficult to achieve in a context of very tight bank lending for speculative development.”
While offices remain a popular choice for property investors, and accounted for the highest proportion of turnover for the fourth year out of the last five, one of the biggest stories of 2017 was the emergence of residential and industrial as sectors of choice.
According to Savills investors are attracted to rental apartment blocks by chronic under supply in the private rented sector. Rapidly rising house prices and restrictive mortgage lending have led to a 39,500-person growth in the number of private renters in Ireland in 12 months. With supply failing to keep up rents are rising and will be strongly underpinned by demand for the foreseeable future. Here, as in other sectors, limited available stock is steering investors towards forward commitments;
McCartney says: “2017 saw several investors take this approach by entering into forward commitment arrangements to acquire rental stock. Both SW3 Capital and German institution Patrizia have taken a forward purchase route at Honeypark in Dun Laoghaire. This involves committing in advance to buy a completed block at a fixed price. This mechanism de-risks the project, making it possible for the developer to finance the build-out costs. In a slightly different arrangement Marlet Property Group is in advanced discussions with a preferred bidder to forward fund the development 1,205 rental apartments across four sites in Dublin. In this model the investor buys the site from the developer up-front and then funds the developer to complete the scheme.”
For a more extensive article see our March/April 2018 Issue of Irish Construction Industry Magazine available on subscription, contact Linda Doran firstname.lastname@example.org