Research - 14/02/2018

IIM H2: Property investment in Ireland rallies in the second half of 2017

Property investment activity in Ireland increased significantly in the second half of 2017, however the total annual volume remained 35 percent below the five year average, according to our latest Ireland Investment Market Bulletin.

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At €2.3bn, investment volume in 2017 was low, standing 50 percent below the 2016 volume. Approximately double the volume of transactions took place in the second half of the year as in the first six months.

Office deals accounted for a third of investment volume, totalling €771m in 2017, with 90 percent of this deployed in Dublin. This included two city centre offices which sold for over €100m, an undisclosed office for €145m in Q4 and 13-18 City Quay for €126.3m in Q1 (NIY 4.57 percent).

At €691.6m, retail transactions accounted for 30 per cent of 2017 activity. This was dominated by the €233m sale of The Square shopping centre in Tallaght (NIY 5.52 percent), although other notable transactions included the €50.1m AIB on Grafton Street (NIY 3.44 percent) and the €23.0m Parkway Retail Park in Limerick (NIY 7.58 percent).

The hotels and leisure sector continues to grow, with six Dublin hotels changing hands in 2017 at a combined total of over €150m, including the €87m sale of the landmark Gibson Hotel (NIY 4.92 percent).

Institutional and private investors were each responsible for 34 percent of volume in 2017, although the pattern of transactions was quite different. Private investors dominated the smaller end of the market with an average lot-size of €4m. They were, however, most active and responsible for 179 of 262 deals. Institutional investors purchased almost €642m of assets, predominantly investing in the larger lot-size with an average purchase of €22.9m across 30 deals.

Paddy Brennan, head of capital markets, said: “On face value, 2017’s activity was muted but it must be considered within the wider context. The large scale deleveraging that characterised 2014-2016 has largely completed and the market environment is returning to a normalised level of activity. The key challenge to Irish investment activity is not a lack of demand, but a supply shortage of larger assets. While this is also affected by the reduction in deleveraging, potential investors are struggling to find suitable assets to deploy capital.”

Reflecting the post-deleveraging environment and a return to more normalised market conditions, investment volume in 2018 is expected to be broadly similar to 2017. While yields for prime assets hardened during 2017, Ireland continues to offer opportunities for potential investors compared with other European locations. In the cities outside of Dublin, in particular, attractive returns are on offer.

Mr Brennan added: “Despite healthy investor demand, a shortage of stock, particularly larger assets, has the potential to negatively impact on investment volume. As a result potential investors will be looking to the alternative sectors, beyond Dublin and to rental growth opportunities, particularly in the office sector, in 2018 to satisfy their requirements.”

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