Signs of stability amid the gloom
Ireland’s crisis-hit commercial property market has come alive in recent months. Investment sales since the start of the year have exceeded €400 million and, with a further €700 million available in recent months and much of it either agreed or in legals, the overall turnover could well exceed €650 million.
That is a long way from the €198 million in sales recorded in 2011 when values were plummeting and the banks were still in shock over the number of dud property assets clogging up their balance sheets.
Most of the buying activity in recent months has centred on discounted office blocks in Dublin city centre, particularly those with strong covenants and long leases.
The high point of the year was the scramble to buy State Street’s new Irish banking headquarters in the south docklands. The sale attracted 14 bidders and the much coveted block – which came with a three-acre development site – was bought for €108 million by Californian investor and Bank of Ireland shareholder Kennedy Wilson.
It had previously acquired three other high-value investments: the Sandford Close apartment complex in Ranelagh (€27 million); a residential block at the Gasworks in Dublin 4 (€40 million); and Brooklawn House office block in Ballsbridge (€15 million).
More recently there have been over a dozen bidders for a bank building of a different sort: the rundown former HQ of the Bank of Ireland on Baggot Street, which sold last week to the Goodman family. Although no value was put on that deal, the guide price of €30-€35 million bore no resemblance to its 2006 selling price of €212 million.
Selling agent Jones Lang LaSalle acknowledged that the new owners would probably have to spend significant sums on refurbishing the complex and even more to extend it. The listed complex has 20,493sq m (220,599sq ft) in one of the best locations in the city.
The high level of interest in other big ticket office investments and the better than expected selling prices could possibly deter some of the unsuccessful international players who came to Dublin with a plan to capitalise on Ireland’s eventual economic recovery.
Even if some of the American, German and other continental funds drop out of the bidding by the end of the year after failing to pick up a bargain, there have been signals that other international funds – including UK players such as Prudential and Standard Life – will be joining the fold in the new year to monitor investment opportunities. Discounted assets with high income yields will always attract an international audience.
Though underlying property values have fallen by a cumulative 67 per cent since the peak, the slippage is rapidly slowing down and all the indications are that before long we may have found a floor. But this ultimately depends on whether the Irish economy contracts further as a result of austerity measures in the Budget.
In the meantime, investors will find consolation in the fact that in the 12 months to the end of September, total returns were in positive territory at 4.8 per cent as against 3.5 per cent in the much-vaunted UK market. The improved performance was largely attributable to the vibrant Dublin docklands, where most of the international companies are still prospering and expanding and where much of the sales activity will resume in the new year.