Investment turnover to reach €500m

ALTHOUGH TURNOVER in the commercial property investment market reached only €50 million in the first three months of 2010, that figure has the potential to rise to €500 million by the end of June because of the number of deals under negotiation, according to the latest market review by Savills.

Joan Henry, head of research, said that if the €500 million figure is exceeded it will include about 25 individual transactions. This would compare favourably with the levels achieved in the first six months of 2008 (€441 million and 25 deals) and would be significantly better than the same period in 2009 (€85 million and 12 transactions).

Michael Clarke of Savills’s investment division, says that because of the high returns on offer, there continues to be significant interest from international investors. These buyers are typically looking for prime, well-configured assets with secure tenancies and have the ability to transact in relatively large lot sizes. Unfortunately, very few deals have taken place because of the limited supply of suitable product available.

Investment sentiment has improved noticeably but activity has been largely confined to secure properties with long leases, primarily bank sale and leasebacks, which dominated the market over the past year with about 30 deals being completed at yields of 6 to 7.25 per cent. Savills say that investments will remain scarce. The main property funds were expected to hold most of their core assets and the expectation was that Nama would not offload many significant higher quality assets in the short term.

“We estimated that the supply of investment stock on the market, which is not currently under offer, is in the order of €250 million – the lowest level of supply since 2005,” says Clarke. “Furthermore, much of this has been on the market for over 18 months and virtually all of this stock is made up of non-prime assets for which there is little demand. Virtually no new properties have been publicly marketed over the last six months and the majority of deals that are taking place are arising from off-market discussions.”

Savills say that prime yields are stabilising but declining rents will continue to impact on capital values. Yields in all sectors are running at significant discounts to long-term averages. Prime Dublin retail yields are estimated at 6 to 6.25 per cent compared to a 15-year average of just over 4 per cent while prime office yields range between 7 and 7.25 per cent compared to a 15-year average of just over 6 per cent.