A new report from Savills on Ireland’s property investment market has revealed that over 1.1 million square metres (sq m) of modern office space has traded in Dublin since the beginning of 2013 – equivalent to one-third of Dublin’s entire office stock. In the Central Business District the figure is even higher – staggering 42% of office space has changed ownership in the last four years.

Over the 2013 to 2016 period, the aggregate value of office investment transactions in Dublin amounted to almost €6.3bn.

Dr. John McCartney, Director of Research at Savills Ireland commented:

“Given the nature of our economy, which is increasingly based on technology and business services, office space is a critical factor of production. During the economic crisis office blocks could be picked-up cheaply and this caused assets to be traded at a ferocious rate. Now that the economy is back on a strong growth trajectory the appeal of these assets has widened and core institutions such as pension funds and REITs have become key buyers.”

After very active trading in offices between 2013-2015, and with the construction pipeline only now beginning to deliver new-builds, fewer prime office investment opportunities came to the market last year. Consequently offices slowed from 48% of turnover in 2015 to 34% in 2016.
However, McCartney says that investors will continue to have opportunities to buy income producing office-assets:

“Some of the short-term money that picked-up offices earlier in the cycle is already moving on to riskier and therefore higher-yielding markets and this will give core investors opportunities to buy good buildings as they are re-traded. In addition we currently have around 400,000 sq m of office space under construction in Dublin. Some of this is being developed by institutions who will hold it long-term. But some will become available to investors once it is completed and let-up over the next 18 months.”

Forward Funding
Savills notes that the re-emergence of forward-funding deals will also provide opportunities for investors. Under these arrangements investors agree to buy completed developments before or during the construction phase.

Domhnaill O’Sullivan and Fergus O’Farrell, Directors of Investment at Savills Ireland say there are several reasons for this:

“On the demand side, such structures enable investors to obtain better returns while avoiding most of the development risk. On the supply-side, while there are numerous proposed office schemes in Dublin, their promoters often lack funding to build them out. This has made the promoters of such schemes particularly receptive to forward funding transactions.”

Elsewhere in the report Savills observes that the recovery in Ireland’s consumer economy lagged the recovery in the corporate sector. As such retail property investment took longer to re-ignite after the crash. However, investment spending on retail assets has increased steadily over the last four years and actually surpassed spending on office blocks.

Outlook
Looking at the Irish property investment market as a whole Savills says that, while demand for income producing property remains robust, the liquid market created by mass post-crisis deleveraging is a thing of the past. Notwithstanding the continued opportunities for investors to develop their own buildings, to forward-fund developments and to purchase re-trades, more normalised supply levels will see investment settle back to a sustainable €2.5bn-€3.5bn per annum over the coming years.

View the full report here – http://bit.ly/2nl5q9x