Demand for investment properties exceeding supply – Lisney

Almost 60% of investment sales for lots above €50m and appetite for risk returns

 

demand for investment properties in the Irish market stands at almost €10 billion this could not be satisfied as even in the busiest year over the past twelve months turnover had only reached €1.8 billion.

Director of investments Duncan Lyster said that as pricing improves some demand would move on to other international markets that were in earlier stages of the recovery cycle. The year 2013 would be remembered as a year of portfolio deals.

Almost 60 per cent of investment sales involved lot sizes above €50 million and these deals helped build confidence at the lower end of the market. A notable trend was the greater appetite for risk. As competition for prime well-let assets intensified, investors were taking a more open-minded view on location, income security and leasing risk.

Mr Lyster said domestic demand had increased considerably in the last 12 months from private investors and Irish institutions and represented 50 per cent of the investment spend in 2013. Capital values were stabilising and prime yields improving across all sectors. Yields were returning to more long-terms average levels and may start to compete again with core Europe in 2014. Investors continued to favour office assets with this sector accounting for 42 per cent of all sales by value in 2013.


Aggressive pricing
Looking at the year ahead, Lyster predicted that further off-market deals were likely at aggressive prices. A greater number of retail assets would be sold including shopping centres.

The extended Capital Gains Tax exemption was likely to be lengthened and could mean activity peaks towards the end of 2014, particularly by private investors.

Managing director James Nugent said the need for new residential and office properties in targeted areas was now very much to the fore and they believed development activity should increase in 2014. The first increases in the office rental market in six years occurred in the city and suburbs and lease terms were becoming less tenant orientated in the city.

The volume of office space either let or sold was 20 per cent greater than in 2012 with some large transactions occurring in the city centre, including Facebook taking space in Grand Canal Square. Rental growth was strong across all Dublin regions. Prime city centre rents grew by 16 per cent with the suburbs ranging from 5 to 25 per cent and the overall vacancy rate down to 17.8 per cent.

Mr Nugent said that prime rents were now just at the levels required to justify new construction. Accordingly, we would start to see some developers with well placed sites in the city centre begin building in 2014. There were also opportunities to refurbish older buildings in the city and capitalise on the rising rents and limited supply.


Key shortages
Mr Nugent said that even with moderate demand and take-up rents would continue to

rise due to the absence of construction. A number of transactions were progressing at the end of 2013 and they estimated that combined short to medium-term requirements for office space was probably about 93,000sq m. The shortage of quality stock in certain sub-sectors would intensify and highlight the need for refurbishment and new construction.

Director of retail Hugh Markeysaid Dublin retail rents had stabilised after falling by about 60 per cent since 2007.

Director of industrial Cathal Daughton said sales and lettings of industrial buildings in 2013 were the highest since the boom and were 210 per cent ahead of 2009.

Almost half of the deals were in the form of sales compared to 7 per cent of transactions in 2009. Values were now about the equivalent of seven years rent and 50 per cent of the construction cost so it made sense for occupiers to buy if they had funds available.

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