Finding value as a quiet market comes to life
Sponsored Those with cash are looking to get back into commercial property
“Prices initially fell through the floor. Nobody was interested because the banks weren’t funding acquisitions. But when the international funds started looking because they believed there was real value to be had, that started pushing up the prices.”
Even those with cash will not invest unless the price is right. “They may have cash, but they are looking for a high return when they spend it. In many cases, they’re looking for IRRs (internal rates of return) of 15 to 20 per cent over five to seven years.”
The companies looking for for more space in Dublin include all the household high-tech names, it seems, Facebook, Amazon, Yahoo, Google, Twitter, LinkedIn. On the Irish side, names include Arthur Cox, KPMG, William Fry, and Bord Gáis.
While the price per square foot was about €25 or so three years ago, says Hargaden, now prime property around Grand Canal Square is making €35 to €40 a square foot, with plenty of incentives. At the height of the boom that would have achieved about €55 a square foot.
“So things are climbing back up, but they’re still slow, relatively speaking,” she adds. “The next stage is that building will re-start.”
What the commercial property market and residential buy-to-let market have in common in the closing months of this year, it seems, is cash.
“The typical buy-to-let buyer at the moment is frequently someone who has cash to spend,” says Michael Grehan, managing director of Sherry FitzGerald Residential.
“There’s around €150 billion on deposit in Ireland at the moment.
“Many people didn’t feel they would get real value at the height of the boom, but they’re ready to buy now – if the price and the returns are right.”
So what should potential buy-to-let investors be wary of?
“Well, property is a great investment,” says Grehan, “but you have to buy well, and an investor should be mindful of the cost of owning a property.
“Service charges can be up to 10 per cent of rent. There’s residential property tax. There’s sourcing and managing of tenants. There are inevitably empty periods. There’s the cost of wear and tear even if the property is appreciating. Rents can fall as well as rise . . . and, of course, buy-to-lets are not as easy to finance as they were a few years ago.”
Whereas at the height of the boom, property could sometimes account for 75 per cent of a client’s asset portfolio, says Tim O’Rahilly, a tax partner at PwC, now it more likely to be 10 to 15 per cent, combined perhaps with equities, cash and bonds.
“People are more conscious of the tax implications of their purchases. They are doing more due diligence. They’re looking at after-tax cash flows and how they meet debt repayments.
“They are treating property as if they were putting money into a company and wanted to know how it was going to be used. Overall, I’d say we’re seeing a far more sophisticated type of investor.”