Investment market remains highly resilient in the face of Covid challenge

International investors drawn to economic fundamentals and attractive pricing

Investor appetite for office buildings was strong in 2021. Transactions included Hibernia Reit’s €152.5 million sale of 1 & 2 Docklands Central to CommerzReal

Investor appetite for office buildings was strong in 2021. Transactions included Hibernia Reit’s €152.5 million sale of 1 & 2 Docklands Central to CommerzReal

 

While 2020 and 2021 have been far from normal, transactional activity in the Irish investment market has been remarkably buoyant with strong volumes of activity recorded despite the fact that investors were not in a position to travel to inspect opportunities until recently. We continued to see new entrants to the Irish market across all real-estate sectors this year, which demonstrates the strength of the underlying investment thesis.

The second half of 2021 has been particularly active with a total of €793 million invested in the third quarter, bringing total investment spend in the first nine months of the year to almost €3.5 billion. Albeit dependent on what transactions sign by year end, the outturn for 2021 should comfortably exceed €4.5 billion. Considering the headwinds experienced in the first half of the year, this is an excellent outcome.

Performance indicators for the Irish market have been demonstrating clear signs of recovery over recent quarters with prime yields and rents stabilising across all sectors in line with strengthening economic and occupational trends. An increase in interest in well-priced retail investment opportunities has been particularly noticeable over recent months. CBRE was particularly pleased to have recently brokered the off-market sale of Nutgrove Retail Park in Dublin 14 for more than €66 million, which is a testament to the increasing demand for strong-performing retail assets.

Investor appetite for office buildings has remained strong throughout 2021 as evidenced by recent transactions including the sale of 1 & 2 Docklands Central to CommerzReal for €152.5 million and we expect this momentum to carry through into 2022.

We continued to see strong investor appetite in the multifamily sector during 2021 also. Investor focus on opportunities in the residential sector is not unique to Ireland, with a considerable weight of capital targeting residential investment opportunities across Europe and residential’s weighting as a proportion of overall investment spend increasing annually in many countries. With planning issues and unhelpful interference impacting on the timely delivery of new accommodation in the Irish market, investors continue to favour residential assets that can demonstrate longer-term affordable rents or established stock.

Forward-funding deals

The majority of trades in the market are forward-commitment transactions, however we have started to see some forward-funding deals happening, the most notable being the sale of Ballymore’s 8th Lock to Union Investment for a reported €200 million, which we were delighted to have advised Union on.

The standout performer of 2021 must be the industrial and logistics sector, with industrial investment activity reaching an all-time high during the year and prime yields having compressed by a full 75 basis points. Indeed, prime office and industrial yields have now converged at 4 per cent. We expect to see continued appetite for this sector in 2022 in Ireland and across the European markets.

We couldn’t review 2021 without mentioning the importance of environmental, social and governance (ESG) considerations. Investors, occupiers and funders are keenly aware of the significance of sustainability and it is now a key investment consideration. As with any shift in market dynamics, it will bring opportunities in the form of the repositioning of older stock.

All in all, the Irish investment market has proven highly resilient, having demonstrated strong liquidity credentials buoyed by impressive economic and occupational market fundamentals and attractive pricing.

Kyle Rothwell is an executive director and head of capital markets at CBRE Ireland