Kennedy Wilson believes retail property market at bottom

Kennedy Wilson, the US real estate giant that has invested heavily in Ireland since the crash, has called the bottom of the market here for retail property.

Peter Collins, who runs Kennedy Wilson Europe from its Dublin office, said retail would be "the big story" of 2014.

He said the firm, which has bought 21 properties in Dublin, mainly comprising office and apartment blocks and commercial assets such as the Shelbourne Hotel, would "focus much more" on retail here this year.

It entered the retail sector here last year when it acquired control of Stillorgan shopping centre via its €306 million purchase from Nama of the Opera portfolio of Treasury Holdings’ property loans.

“Retail is a tough place to be. But we think the leading indicators look good,” said Mr Collins.

He added that Kennedy Wilson, which has $13.7 billion of assets under management globally, would focus on trying to acquire shopping centres anchored by grocery tenants.

Apartment blocks
Mr Collins, who was speaking at a property seminar at the Marker Hotel in Dublin organised by the Society of Chartered Surveyors Ireland, also said Kennedy Wilson would invest further in apartment blocks for the rental market.

The company, which owns blocks on Clancy Quay and near Google in the so-called Silicon Docks area of Dublin, owns about 800 apartments in the city. Mr Collins said it was aiming to get "into the thousands" as quickly as possible.

He said because of a lack of construction, the last available multi-unit apartment blocks controlled by Nama and other institutions would be sold within the next two years.

This would force investors to look at extending existing apartment blocks, he said. Kennedy Wilson is likely to increase its Clancy Quay apartment investment; there is already planning permission for more than 200 additional units there, on top of the 400 that it already owns.

He said the firm would concentrate on trying to acquire more “broken” schemes, where it could gain control of the management companies for the apartments.

The key to making money in the residential renting market was to drive net operating income, he told the meeting. With costs to landlords rising such as through extra property taxes, this would require the firm to increase the rents on its tenants to boost its net operating income.

He said there was no scope for “spectacular” rental growth.

He added rents were not yet high enough to justify investors pumping cash into new apartment blocks on greenfield sites.

Rent controls
He also warned against any move by policymakers to try to introduce rent controls.

“It is not a good idea when rents are not high enough to justify new development,” he said.

The firm is also trying to acquire more office blocks in Dublin, where it owns 232,260sq m (2.5 million sq ft) of property overall, “95 per cent” of which is occupied.

Mr Collins said there was a shortage of old office blocks suitable for refurbishment.

While “media and government” were focused on an impending shortage of large-scale office buildings in Dublin, he said the busiest end of the market was actually in terms of tenants looking for space of 929sq m (10,000 sq ft) or less.

He said prime office rents would continue to grow, but average rents would “mark time”.