A year of mega deals driven by international investors

Budget 2020 stamp duty hike and Reit policy changes undermine Irish proposition

With the average building height in the docklands at approximately six stories, we are much lower-rise than other European capital cities. Photograph: Eric Luke

With the average building height in the docklands at approximately six stories, we are much lower-rise than other European capital cities. Photograph: Eric Luke

 

For investments, 2019 will be the biggest ever year for transactions, with €5 billion traded. This was driven by the fact there were 14 deals greater than €100 million in the last 12 months. Most notably, this includes the sale of Green Reit, which is one of the largest sales in the history of the Irish market at €1.34 billion.

Another key trend was the increase in overseas investors in the market, representing approximately 70 per cent of total volumes in the last 12 months. The most active have been from Germany, the US and southeast Asia. There also continues to be new entrants which is positive.

In terms of sectors, as predicted, the private rented sector (PRS) and offices dominated. Prime, new-build and large-scale opportunities within the core Dublin market are of greatest demand from investors, with €1.5 billion of PRS trading. There has been some retail activity but it is dependent on accurate pricing. Logistics also remains of interest, but the lack of opportunities of scale is limiting investor activity.

Challenges

While it was a strong 12 months, there are some challenges. The main one being Budget 2020. Without any warning, the value of commercial property decreased by 1.4 per cent overnight when the increase in stamp duty (to 7.5 per cent) was introduced. There have now been two changes to stamp duty rates in the last three budgets. This impacts all property owners, both small and large scale, but of greatest concern is the message this has sent to investors about Ireland’s transparent operating processes, and that these are open to frequent government interference. I also don’t think this will raise as much revenue as the Government expects.

In addition, the changes to the Reit policy were concerning, with a targeted tax on only a handful of companies who have a vital role in delivering office space, which in turn supports job creation, and residential development, which supports housing need.

Another missed opportunity for the Government has been in the area of building heights. With the average building height in the docklands at approximately six stories, we are much lower-rise than other European capital cities. While increasing height density would not work in all parts of the city, there is an opportunity for greater height in the docklands area.

There is close to six million sq ft of office space in the north and south docklands. Had an additional three floors been permitted in these buildings, there would have been accommodation for an additional 30,000 jobs. The same could be said for the residential buildings in the same location, where additional height would help to alleviate the acute supply shortages of housing across all residential sectors.

The year ahead

Looking ahead to 2020, we expect the market to continue to perform steadily. The next 12 months will be about resilience to external factors with the expectation that the market continues at sustainable levels.

Looking outside of sector-specific trends, there are two broad themes which I think we are going to be hearing an increasing amount about: technology and sustainability.

As technology is evolving at such a fast pace, it is impacting on all parts of property, from fit outs, to management, to occupation. The winners will be those who embrace this change, and adapt quickly.

In addition, the requirement for companies and buildings to operate more sustainably is also gaining increasing importance. We expect to see greater emphasis on green buildings, reducing carbon emissions, and broadly operating in more sustainable ways. This will be across all markets.

John Moran is chief executive of JLL Ireland