According to Savills latest research report commercial real estate turnover in Ireland could exceed €3 billion in 2014, having recorded the highest investment volume since 2006 in 2013 with 140 sales transactions worth almost €2 billion.
According to Savills latest research report commercial real estate turnover in Ireland could exceed €3 billion in 2014, having recorded the highest investment volume since 2006 in 2013 with 140 sales transactions worth almost €2 billion.
Domhnaill O’Sullivan, investment director at Savills Ireland, says: “2013 exceeded all expectations in relation to commercial property investment volumes. At this point in 2014 there are approximately €750 million of transactions agreed or in legals, and an estimated pipeline of around €600 million coming to the market in the short-term. In addition a significant volume of stock is still waiting to be traded and if any of the banks currently holding large volumes of stock decide to de-leverage via large portfolio sales, we could see turnover reach record levels again by the end of the year.”
The research finds that Dublin offices remains the sector of choice for investors in 2013 and the firm notes that this demand for office assets was underpinned by the recovery in the occupational market, which saw the overall vacancy rate decline during the course of the year. In Q413 vacancy rate for Dublin offices were recorded at 15.3% on average, down from 20.2% in Q412. The reduction in supply combined with sustained demand has led to a significant recovery in prime rents, with top rents reaching €31 per sq m / per month and Savills expects this upward rental trend to continue this year.
Outside of Dublin the report observes that of the €191 million of investment sales carried out, €91.8 million was accounted for by just three deals: City Gate office buildings in Cork (€40 million); Edward Square Shopping Centre in Galway (€27.3 million) and The River Lee Hotel in Cork (€24.5 million). Whilst Savills believes the capital will continue to be the primary focus for investors, it anticipates a pick up in regional sales activity as new portfolios are brought to the market and national loan books that have traded in previous years begin to be broken up.
American investors remain very active in the market according to the report, acquiring five of the top ten assets sold in 2013. Nonetheless, the firm suggests that one of the defining features of the investment market in 2013 was the return of the Irish institutions.
Domhnaill O’Sullivan explains: “Demand from Irish institutions was bolstered by the introduction of Ireland’s first REIT, which invested €202 million during the course of 2013. With others likely to follow, we expect that REITs will form a significant part of overall market demand going forward. This, in tandem with increased demand from established institutions such as Irish Property Unit Trust (IPUT) and Irish Life, will further underpin an already strong investment market.”
In total, Irish investors acquired five of the top ten investments, with one institution - Irish Property Unit Trust (IPUT) – acquiring two of the highest value office lots (1 Grand Canal Square, a prime office building multi-let to HSBC, Accenture and Activist, and Riverside II, a modern office building located on Sir John Rogerson’s Quay). Aside from the dominant activity from Irish and US investors, Canadian buyers carried out transactions worth €42.6 million and European purchasers spent €93.1 million in 2013, which Savills suggests is evidence of the improving perception of Ireland as an investment destination.
Dr. John McCartney, economist and director of research at Savills Ireland, comments: “There is now a growing sense that Ireland’s economy is on a sustainable recovery path which, in turn, is underpinning the demand for investment properties. Ireland’s successful exit from the EU/IMF assistance programme and the significant progress that has been made in bringing the fiscal deficit under control, has improved the external perception of Ireland as a location for investment.”
Savills suggests that this renewed confidence appears to be justified by the main macro-economic aggregates. Gross National Product (GNP) – the most representative barometer of activity in the Irish economy – expanded by 3.9% year-on-year in Q3 2013. In addition, rising employment has increased the attractiveness of office investments in Ireland. In net terms 60,900 new jobs were added in the economy last year, representing an increase of 3.3%, which the firm notes is remarkable by international standards and is feeding through to stronger occupier demand. Consequently the vacancy rate for Grade A offices in the traditional Central Business District is now just 4.1%.