Commercial property investment turnover heading for €5bn as year end looms

Core office, PRS and logistics most sought after assets as level of capital expected to rise

French investor Corum Asset Management paid €60m for the NSQ1 building at  Navigation Square  in Cork city

French investor Corum Asset Management paid €60m for the NSQ1 building at Navigation Square in Cork city

 

Despite limiting factors such as travel restrictions, investment turnover surpassed €3.5 billion during the first nine months of 2021. Already in the fourth quarter, transactions worth more than €1.3 billion have either reached completion or are in advanced stages of negotiation, leading us to project investment turnover of between €4.5 billion and €5 billion for the year. This means that it is likely to be one of the top three years on record for commercial property investment – an impressive result considering we were in lockdown for the first five months of the year.

Core office, private rented sector (PRS) and logistics assets have been most sought after, highlighting confidence in long-term prospects for our economy and occupier markets. Investors are certainly more selective, but the level of capital seeking to be deployed is at unprecedented levels and expected to rise further.

Residential is the top performing sector, with close to €2 billion invested in the year to date and deals worth at least €300 million expected to transact before year end. This is in line with trends being seen elsewhere in Europe and we expect to see new entrants in this sector in 2022.

Core offices in the €20 million-€60 million bracket have seen fiercely strong competition, as was evident on the sale of the 8 Hanover which attracted strong international interest and pricing.

However, we are also seeing increased demand for core-plus and value-add opportunities. While ESG is a key consideration, certain investors are happy to acquire non-core assets, as long as the price and tenant covenant are attractive. We are seeing new entrants in this space providing competition for existing buyers.

Activity is increasing outside Dublin too, with new developments in Galway and Cork attracting high-quality tenants and buyers.

Retail is showing resilience and increasing market share, with a definite demand returning for opportunities across all subsectors. Well-let shopping centre opportunities are moving quickly, with interest predominantly coming from domestic buyers. Investors in this space remain selective and there is still some caution in relation to vacancy within assets. However, as we see increased confidence in the occupational market, we see this translating into the investment market.

Industrial and logistics has been one of the standout performers of 2021. Strong demand is being met with limited supply with yields reaching a new low of 4 per cent. Ongoing development both in Dublin and regionally will provide enhanced options in 2022 and beyond.

Overseas investors represented 67 per cent of investment in the year to date. European investors, predominantly German funds, are extremely active and we expect to see further new entrants next year. There has also been significant growth in investment from US funds, while Asian investment remained limited during 2021, save for some PRS acquisitions by Singaporean fund GIC.

Domestically, we have seen increased activity among high-net-worths in the context of low interest rates. There is a distinct shortage of quality long-income stock available to meet this demand. Across the board, however, we expect to see more stock released to the market in 2022 due to the expiry of seven to 10-year hold periods.

Looking ahead, we expect that investors with longer hold periods will continue to seek out quality, prime assets with good ESG credentials across the PRS, office and logistics sectors. There will also be increased demand for secondary, non-ESG compliant assets among opportunistic investors. Growth in alternative sectors such as data centres, life sciences and healthcare is also expected in line with global trends.

We maintain a positive outlook for the Irish investment market. Ireland continues to prove itself as an attractive location for investment and offers strong relative value. Activity should remain brisk all the way up to the end of the year and into next year with demand supported by continued low interest rates.

Michele McGarry, director and head of capital markets at Colliers. ‘It is likely to be one of the top three years on record for commercial property investment’
Michele McGarry, director and head of capital markets at Colliers. ‘It is likely to be one of the top three years on record for commercial property investment’

Michele McGarry is a director and head of capital markets at Colliers