Finding value as a quiet market comes to life
Sponsored Those with cash are looking to get back into commercial property
Before the crash, commercial property and residential buy-to-lets used to be a routine part of most private wealth management portfolios. Rental yields were high and capital appreciation was solid. It’s hard to believe that just five years on from such a devastating collapse, both sectors are staging a convincing comeback.
Commercial property, in particular, is showing every sign of outstripping the fragile recovery in the economy as a whole. While GDP growth tipped back into negative territory at the start of this year, in the capital’s office market, vacancy rates are falling and prime rents are rising.
So rapid has the turnaround been that IDA chief executive, Barry O’Leary, warned during the summer that a shortage of prime commercial property in Dublin could hamper the agency’s efforts to attract overseas businesses.
Government policy, and in particular the 2012 Budget, has been crucial in creating this positive environment, according to real estate advisers, Savills, who say that:
– reduced commercial stamp duty has stimulated activity by enhancing total investment returns
– a capital gains tax waiver on deals completed before the end of this year has provided a strong incentive for long-term investment
– the introduction of REIT (real estate investment trust) legislation and the launch of the Green REIT in June has given another injection of confidence.
“More than €1 billion has been invested in Irish commercial property so far this year, compared to €545 million during all of 2012,” says Domhnaill O’Sullivan, director of commercial at Savills. “By the end of the year, that will probably top €1.5 billion.”
High-profile US private equity investors – such as Kennedy Wilson, Blackstone, KKR, Lone Star, Oaktree Capital, Carlyle and Apollo – have been the main movers behind this extraordinary drive to acquire commercial property value, says O’Sullivan.
In fact, Savills advised Kennedy Wilson in the €306 million purchase during the summer on the “Opera portfolio”, which included Stillorgan shopping centre, Merchant’s Quay shopping centre in Cork, KPMG’s offices on St Stephen’s Green, and the Bank of Ireland headquarters on Mespil Road in Dublin 4.
Along with those overseas buyers, Irish funds are active again and Irish high-net-worth individuals – those who have emerged unscathed from the financial crisis – are back in the market and finding plenty of purchasing opportunities, says O’Sullivan.
Many of the latter, and quite a few “family offices” (private companies managing investments and trusts for a single family), have been buying through qualifying investor funds (QIFs), which have a minimum subscription of €100,000, are regulated by the Central Bank, and, crucially, are exempt from tax on income and gains.
So is this a real buying frenzy? Or is it to some extent at least symptomatic of the fact that, as O’Sullivan points out, there’s been essentially no commercial property built in Ireland since the start of the downturn and that inactivity is making itself felt?
Ann Hargaden, chairman of Lisneys and head of its investment department, believes it’s the latter.
“The reality is that nobody has been building speculatively in Ireland for as long as seven years,” she says.