Dublin third among European cities for real estate investment

Capital has peaked for opportunistic returns but demand remains strong, report reveals

Number One Ballsbridge: large scheme is under construction. There is significant institutional investor interest in buying end product in Dublin

Number One Ballsbridge: large scheme is under construction. There is significant institutional investor interest in buying end product in Dublin

 

Dublin ranks in the top three European cities for real estate investment for the last three years.

A new report by PwC/Urban Land Institute shows that sentiment is very positive for Dublin, with real demand coming from overseas companies.

Berlin is named as the top European investment market, followed by Hamburg, Dublin, Madrid and Copenhagen.

While Dublin is still attracting plenty of capital, the consensus among interviewees is that the Irish capital has already reached its peak for opportunistic returns.

Those who have already invested in the city or who choose to invest in the very near term are likely to see the highest total returns.

Dublin offices are expected to see rental growth, but the demand for increased office space is unlikely to be satisfied for several years.

The lack of assets suited to bargain hunters has made way for an increased appeal to core investors who will now have to take on more risk when seeking higher returns.

The report says Dublin’s retail recovery has just started and the city has seen a large volume of capital seeking to acquire retail assets.

Enda Faughnan, PwC Ireland real estate partner, said sentiment remained very positive for Dublin investment and was coming from a pretty broad spectrum of investor types – hedge funds, private equity players, pension funds, retail investors, wealth management, sovereign wealth and larger insurance companies.

“Distressed bargains are no longer the attraction. We are seeing real demand from overseas companies setting up in the city centre with younger staff who want to live in or close to the city centre. That creates a lot of rental opportunities.”

Tim O’Rahilly, PwC Ireland real estate partner, said further value enhancement would be driven by rental growth. There had been a pretty rapid recovery and people were seeing a shortage of prime office space in Dublin. There was also a huge shortage of new residential units and, with prices expected to continue to increase, purchasing was out of reach for a lot of people.

“We re seeing significant institutional investor interest in buying end product and the expectation is that this will continue for the medium term. Development, however, is taking a while to get fully moving. Those seeking higher returns will now have to take on more risk.

“Opportunities can still be found in the development space, but this may involve buying debt rather than land, with investors being prepared to work with the existing landowners.”

The report also showed that 64 per cent of respondents to a survey said their business profitability would increase in 2016.

There will be an increase in real estate debt availability, according to 66 per cent of the respondents. However, European respondents believe the sources of this debt will change. For example, 53 per cent said that mezzanine lending would increase and 59 per cent said that other non-banking lending would increase.