Investment in Irish real estate hit record levels in 2014 with over €4.5bn of assets directly traded in the market. A number of large deals carried into the early months of 2015 and, as a result, turnover in the first half of the year reached almost €1.8bn. Although this is comparable to H1 2014, our analysis of the supply pipeline suggests that overall turnover for 2015 will be a little lower than last year at around €3.5bn. However, this would still represent a very busy year of trading by historical standards.

^{Source: Savills European Research}

Four of the top five deals in H1 involved office buildings, with a number of assets which were picked-up by private equity investors earlier in the cycle being sold-on to core institutional investors. It is interesting to note the emergence of a broader pool of European and US institutions as buyers for this type of product, and further re-trades will remain a feature of the market as short-term holders move properties on and into the hands of longer-term money.

Source: Savills European Research

Retail property only accounted for 10% of investment turnover in the first half of 2015. However, this reflects the scarcity of large-scale availability rather than any lack of demand. A number of major retail lots will come to the market over the coming months – both as direct assets and as loan sales – and bidding for these opportunities is expected to be competitive.

There has been significant yield compression in all asset classes over the last 12 months. With quantitative easing continuing to weigh on bond returns and with property yields still higher than at the peak of the last cycle, our view is that there may be scope for some further compression. However, with occupational markets tightening, most of the remaining upside is likely to come from rental growth. Prime city centre office rents have already risen by 16% year-to-date and with availability now very tight further rental growth is inevitable. Prime retail rents are also moving up and this will continue to drive values in the better locations through the remainder of 2015 and into 2016.