Investment market resilient in the face of outrageous fortune

Investors not holding back despite ongoing challenges from pandemic

We will be keeping a very close weather eye on unnecessary Government interference in the market, but on balance we expect 2022 to be a positive year for the market. Photograph: iStock

We will be keeping a very close weather eye on unnecessary Government interference in the market, but on balance we expect 2022 to be a positive year for the market. Photograph: iStock

 

Early in the morning on the December 8th, 2020, William Shakespeare was the second recipient of the Pfizer/BioNTech vaccine. In just under a year, even after a phenomenal rollout by the health authorities to fully vaccinate 76 per cent of Ireland’s population (93 per cent one dose), we are currently dealing with surges in new cases and hospitals once again reaching capacity. The vaccine was what many believed to be the pandemic’s silver bullet but now has many others asking was it much ado about nothing?

Of course, this is a myopic stance as the science has proven the vaccine reduces the chance of experiencing severe Covid-19 symptoms by 90 per cent and those inoculated reduce the likelihood of spreading the virus to others. It is against this background that business has begun to plan again for the future and this resilience has been mirrored by real estate investment with a year of relative stability and growth.

All sectors of the market exceeded initial expectations throughout 2021. Overall, €3.5 billion has transacted in the first nine months of 2021, twice that of the same period in the previous year and exceeds all of 2020 by €500 million. We are projecting that an additional €1 billion of investment in Q4 2021 which will close the year off with €4.5 billion across all sectors. This will be an increase of a third on 2020 and almost €500 million more than the annual average from 2016 to 2020.

‘Beds and sheds’

The real estate mantra from commentators and analysts since the arrival of the pandemic has been “beds and sheds”.

2021 has been a continuation of this meditative chant with the private rented sector (PRS) taking the largest slice of the cake with 54 per cent of all investment volumes during the first nine months of the year. This percentage will likely grow by year end with some prominent deals expected to be signed before the new year. Most investments in PRS were forward purchases or fundings giving further buoyancy to the sector which other sectors might not have the luxury to enjoy as overseas investors were not bound by site inspections. Foreign investment with PRS deals consisted of more than 75 per cent in the first nine months of the year. The importance of this investment in the provision of housing supply cannot be underestimated, as without it, the domestic market simply doesn’t have the capacity or capability to deliver this number of units.

In terms of “sheds”, it has been a record year for logistics and industrial, recording €450 million for the first nine months of the year. Q3 2021 alone had €325 million worth of investments which was more than any year on record. The sector is on course to exceed €600 million by year end with a forward funding investment for the Penneys distribution centre in Newbridge, Co Kildare likely to be signed in the coming weeks. The pandemic brought many industries to call an audible as consumer behaviour fundamentally changed and led to exponential growth in e-commerce. JLL research from Europe shows that take-up in e-commerce went from 10 per cent in 2019 to highs of 25 per cent in 2021. Investors are capitalising on this new foundation of the sector and benefiting from the limited supply of prime logistic buildings over 9,290sq m (100,000sq ft) throughout the country and the continent.

A forward funding deal for Penneys’s new distribution centre in Newbridge, Co Kildare is expected to complete shortly
A forward funding deal for Penneys’s new distribution centre in Newbridge, Co Kildare is expected to complete shortly

Office and retail

Reports on the death of the office have been widely exaggerated as office investment volumes were unaffected by the pandemic. There was €827 million worth of investments up to September which is in line with that of the same period in 2019 and 2020. There is potential for an additional €400 million to be transacted in Q4 2021 with the Serpentine Consortium’s Facebook headquarter site in Ballsbridge near signing.

Retail remains the hardest hit sector but 2021 showed signs of life with notable deals such as the €30 million sale of the Citywest Shopping Centre, €18.5 million sale of Bridgewater Shopping Centre and the sale of 26/27 Grafton Street for €25 million, all of which were facilitated by JLL. The sector will outperform in 2020 but a full recovery is not expected to take place until 2022.

Positive market

The year ahead will be more than just pandemic-related challenges but also the accumulation of issues that were set aside to create a national response to the virus. We will continue to see the march into alternatives. Healthcare, senior living and infrastructure will all see sizeable investments and move from nascent sectors to mainstream asset classes. We will be keeping a very close weather eye on inflation, labour market conditions, unnecessary Government interference in the market, and the competitiveness of the Irish economy, but on balance we expect 2022 to be a positive year for the market.

John Moran is chief executive and head of investment at JLL Ireland

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