The flow of international funds to Irish commercial property has been the standout investment story of 2013. Investment activity this year is expected to exceed €1bn for the first time since 2007.
The successful launch of the Green REIT (or Real Estate Investment Trusts), and the expectation of further REIT launches taps into a new wave of institutional money entering a market already popular with several well-known US private equity names as well as the established Irish pension funds
Given the positive buzz surrounding the market, both private investors and wealth managers who have yet to dip their toes in would be forgiven for wondering whether the time has now come to call the ‘bottom’ of the market? Is now the right moment to increase exposure to Irish commercial property and benefit from the upswing?
I think the answer is yes, but caution still needs to be exercised as the recovery is still patchy and mainly restricted to core Dublin locations.
There is no doubt that the demand for the prime Dublin commercial districts has seen values stabilise, particularly where there is a strong tenant covenant and secure income flows.
Riskier assets, with less secure income streams, are gaining investor interest where the location is good. In 2013, yields have moved downward by as much as 1pc for core assets through the pure weight of international and indigenous investor money seeking a home.
Compared to other European cities, Dublin is being singled out by investors competing for assets where they now believe there will be rental growth prospects, especially in Dublin Offices.
Retail rents in prime locations are generally half what they were in 2007 which has attracted strong interest in our prime streets from existing retailers such as H&M to new entrants like Massimo Dutti.
Likewise, the lack of existing Grade A office space in Dublin 1, 2 and 4, coupled with the lack of speculative space being built, will see an increase in rents for space in the short to medium term, triggering a recovery in investment values.
The big question is whether this investment appetite (particularly from international money) will start to extend beyond prime Dublin locations to the retail and office sectors in provincial cities and towns across the country.
The story in residential property from the latest CSO data (surging prices in Dublin but continued weakness in the rest of the country) is true for the commercial sector, where the market performance outside Dublin could, at best, be described as mixed. The depth of investor appetite for provincial and non-core assets is about to be tested as banks, particularly non-Irish ones, start to deleverage their loan books at a faster rate and increase supply into the market. Source: Irish Independent