Despite the lockdown start to 2021, it will have been a good year for the commercial property market.
At the end of the third quarter turnover had hit €3.5 billion with the full year likely to be close to €4.5 billion. More than half of all investment deals up to the end of the third quarter were residential, up 38 per cent from the same time in 2020, illustrating the continuing demand for residential investments.
We have seen strong demand this year from two particular cohorts – private high-net-worth Irish investors and European funds, particularly from France and Germany. Some US money is also targeting Ireland.
An interesting statistic for 2021 is the increase in private Irish investors in the market. In 2020, just 18 per cent of acquisitions were by Irish buyers. This increased steadily during the year to 43 per cent in the third quarter of 2021.With negative interest rates being charged by banks on deposits, and the Irish 10-year bond yield of 0.25 per cent compared with the latest MSCI all-property equivalent yield of 5.4 per cent, real estate is a particularly attractive investment. We have seen larger scale Irish investors focusing on more opportunistic deals with smaller scale investors being more risk averse.
European funds see Ireland as a secure real-estate destination. Irish real estate, and Dublin real estate in particular, has shown its resilience throughout 2021 and has successfully attracted capital due to positive market fundamentals. The strong performance and future confidence in the economy is fundamental to the commercial real-estate investment activity and how this compares to other jurisdictions.
Investors' perception of retail turned a corner in the second half of this year. Some vendors were confident enough to bring assets to the market on the basis that investor demand existed. Owners such as Marathon, Goldman Sachs and Davidson Kempner successfully sold a number of assets such as the Parks Portfolio (€70 million), Bridgewater Shopping Centre (€18 million) and Nutgrove Retail Park (€66 million). The combination of values being at attractive levels, occupier enquiries rising and the fact that it is likely to be some time before any further retail is constructed underpinned the rationale to acquire.
The office as a place to work was being questioned last year. However, with a robust level of occupier enquiries and a potential shortage of new office supply, demand from investors remains strong. A private Irish investor acquired Royal Hibernian Way for €74 million. German investor Deka Immobilien is understood to have beaten off strong competition from a number of international funds to acquire the European headquarters of Airbnb on Hanover Quay for a sub 4 per cent yield, while Blackstone is reported to be paying €400 million for the Meta headquarters in Ballsbridge, again at a yield in the region of 4 per cent.
The biggest winner during Covid continues to be the logistics sector and it is now a key part of overall retail supply chain. Yields have tightened significantly, with the Primark facility in Newbridge secured by Union for about €129 million, a yield of sub 4 per cent. This is now a lower yield than prime retail and in line with offices.
There was a major shift also in relation to the demand for offices that meet the ESG (environmental, social, governance) requirements of both occupiers and investors. Both are reviewing their portfolios with these requirements in mind and this has had a positive impact on new buildings, with older properties being viewed through the lens of additional expense and upgrade costs.
Overall, the fundamentals for Ireland and the property market remain positive, despite the continuing uncertainty caused by the pandemic. Inflation has reared its head more recently and with property being a traditional inflation hedge, its fundamentals as an investment medium are likely to remain attractive. Having said this, how central banks deal with inflation will be something to keep an eye on during 2022.
Seán O’Neill is a director and co-owner at TWM