Mar­ket back to nor­mal­ity with €1bn of prop­erty sold

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Donal Buck­ley

MORE than €1bn worth of prop­erty deals were com­pleted in the first half of this year in Ire­land. These in­cluded more than €770m worth of com­mer­cial prop­er­ties bought by in­vestors, as well as €75m worth of ho­tels sold by ho­tel op­er­a­tors and there were also al­most €269m worth of de­vel­op­ment land deals.

Mar­ian Fin­negan, chief econ­o­mist with Sherry FitzGer­ald, says that based on pre­lim­i­nary data about €319m worth of deals were done in the sec­ond quar­ter of this year, bring­ing the to­tal worth of deals in the first half to about €770m. This com­pares to €2.8bn in the same pe­riod last year, of which €2.1bn was in Q2 2016, in­clud­ing €950m for Blan­chard­stown shop­ping cen­tre.

Han­nah Dwyer, head of re­search at JLL, says that while the first six months of 2017 are down on 2016, last year was an ex­cep­tional year and was in fact the sec­ond strong­est year ever recorded in the in­vest­ment mar­ket.

“Half-year vol­umes of €770m are in line with the ac­tiv­ity for a more ‘nor­mal’ mar­ket. The 15-year av­er­age H1 take-up vol­ume is €760m, which in­cludes the peak years when vol­umes achieved as high as €2.8bn in the first half of the year.

Ms Fin­negan says the largest in­vest­ment trans­ac­tion in the first half of this year was the Ir­ish Life deal to for­ward fund the de­vel­op­ment of a new of­fice block at 13-18 City Quay, Dublin 2. It is be­ing de­vel­oped by Oak­tree’s as­so­ciate com­pany TIO (Tar­geted In­vest­ment Op­por­tu­ni­ties) and has been pre-let to Grant Thorn­ton.

The sec­ond big­gest deal was Dalata’s ac­qui­si­tion of the Clay­ton Ho­tel on Cardiff Lane, Dublin 2, which traded for about €40m. The third largest trans­ac­tion was the sale of the Park Of­fice Port­fo­lio by Michael Cot­ter’s Park De­vel­op­ments for €38.6m to an in­vest­ment syn­di­cate.

Hines’ pur­chase of the Mon­trose Stu­dent Res­i­dence in Dub- lin 4 for €37.7m from Zig­gu­rat Stu­dent Liv­ing was fourth, while Ir­ish life’s pur­chase of Unit Q1, Aero­drome Busi­ness Park, Dublin 24, for €28m from a pri­vate Ir­ish in­vestor was fifth.

Ms Dwyer is ex­pect­ing in­creased ac­tiv­ity “in the sec­ond half of the year, with over €1.3bn of as­sets ei­ther cur­rently on the mar­ket or due to come to the mar­ket in the next few weeks. We are con­fi­dent that our ini­tial fore­cast of €2bn for year-end vol­umes will be reached. De­mand re­mains steady from both do­mes­tic and over­seas pur­chasers, but some are be­ing more se­lec­tive, de­pend­ing on the in­vestor and prod­uct type. We con­tinue to see new en­trants to the mar­ket which is en­cour­ag­ing.”

Marie Hunt of CBRE says: “The scarcity of core prod­uct to match vol­umes of un­der­ly­ing de­mand is con­tin­u­ing to frus­trate in­vestors and in turn is see­ing some in­vestors move up the risk curve in terms of as­set al­lo­ca­tions.

“This is man­i­fest­ing it­self in in­creased in­ter­est in al­ter­na­tive in­vest­ment op­tions such as Build-to-Rent (BTR) and stu­dent ac­com­mo­da­tion as well as in­creased ap­petite for for­ward-fund­ing op­por­tu­ni­ties. With up to €1bn of in­vest­ment trans­ac­tions in play at present, we are ex­pect­ing a rel­a­tively healthy vol­ume of trans­ac­tional ac­tiv­ity to be recorded in 2017, al­beit the make-up of this spend will be quite dif­fer­ent to that of re­cent years.

“We ex­pect to see some size­able as­sets be­ing launched for sale over the com­ing months, mean­ing trans­ac­tional ac­tiv­ity will be heav­ily skewed to­wards the sec­ond half of the year as we had an­tic­i­pated. How­ever, 2017 turnover will ul­ti­mately be dic­tated by the num­ber of these trans­ac­tions that sign by year-end with some of them po­ten­tially fall­ing into 2018.”

Sarah Win­ters of TWM con­curred with that view, not­ing that the year-end fig­ure for 2017 will very much de­pend on a few big­ger ticket sales com­ing to the mar­ket, which there have not been so far this year.

“Typ­i­cally the top five deals ac­count for 35-40pc of the mar­ket,” Ms Win­ters said, adding that these deals are needed if in­vest­ment vol­umes are to ex­ceed the mar­ket’s 12-year av­er­age.

In tan­dem with a busier sec­ond half, the val­ues of Ir­ish com­mer­cial prop­er­ties look set to re­sume their up­ward mo­men­tum af­ter slow­ing down dur­ing the last 12 months. In­deed, growth in Ir­ish com­mer­cial val­ues may well outpace those in many Euro­pean mar­kets, thus en­tic­ing in­ter­na­tional in­vestors to com­pete for Ir­ish prop­er­ties.

At the be­gin­ning of this year, CBRE had fore­cast that prime com­mer­cial yields would re­main sta­ble in 2017 but that sec­ondary yields would soften.

Now, how­ever, Ms Hunt says: “Al­though yield com­pres­sion has run its course in many mar­kets across Europe, there is still po­ten­tial for yields to com­press a lit­tle fur­ther in the Ir­ish mar­ket, which in turn is at­trac­tive to in­vestors who are en­cour­aged by Ire­land’s eco­nomic back­drop, rental growth po­ten­tial and the un­der­ly­ing strength of oc­cu­pier mar­kets.

“With ev­i­dence of in­creas­ing ap­petite for al­ter­na­tive in­vest­ment, it is not sur­pris­ing that we have al­ready started to see yields for mul­ti­fam­ily res­i­den­tial and stu­dent ac­com­mo­da­tion start­ing to harden.”

She also sees yields tend­ing to be stronger for re­tail high street prop­erty, which have been at 3.25pc for more than 12 months, and of­fices, which have been at 4.65pc over the same pe­riod.

Oth­ers point out that, over that pe­riod, ris­ing rents have un­der­pinned the growth in cap­i­tal val­ues but it looks like com­pet­i­tive bid­ding by in­vestors will pro­vide a fur­ther boost to growth rates for cap­i­tal val­ues in the com­ing months.

CBRE also re­ports that 18 ho­tel prop­er­ties, to­talling al­most €75m be­tween them, sold in Ire­land dur­ing the first six months of 2017. This com­pares with 29 ho­tel sales to­talling €136m in the same pe­riod last year. Those fig­ures do not in­clude ho­tels which were sold as in­vest­ments, as those were in­cluded in the €770m fig­ure. There is cur­rently up to €60m of ho­tel trans­ac­tions un­der ac­tive ne­go­ti­a­tion.

In ad­di­tion a to­tal of 50 de­vel­op­ment land trans­ac­tions worth al­most €269m be­tween them, com­pleted in Ire­land dur­ing the first half of 2017. This com­pares with €489m gen­er­ated by 53 sales in the same pe­riod of 2016 when a num­ber of large trans­ac­tions oc­curred.

Hines’ €37.7m ac­qui­si­tion of the Mon­trose Stu­dent Res­i­dence was one of the most valu­able trans­ac­tions in the first half of 2017

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