Irish invest €2bn in UK property

Irish investment capital continues its flight to the UK with Irish purchases passing the €2 billion mark and capping a third year of substantial growth.Irish property investment in Britain now represents about 20 per cent of all foreign investment there, second to the Germans.

Higher yields, more purchase options and similar banking and conveyancing procedures are helping to fuel this investment exodus.

The Government's decision last year to increase stamp duty to 9 per cent, compared to 4 per cent in the UK, has also made the UK an attractive investment option for those holding property portfolios. The trend has been decidedly upwards in recent years. The €1 billion record reached in 2001 was topped in 2002 with €1.5 billion and for 2003 has passed out €2 billion, according to companies dealing in the UK including CB Richard Ellis Gunne, Lisney's and Nelson Bakewell Property Consultants.

The departure of Irish capital has been strong and steady, with yields remaining good despite the risk of currency fluctuations. One thing that has changed is where the money is going, says Ann Hargaden, a director at Lisney's. "Of those setting their sights on the UK a structural shift in geographical location took place," she says. "As late as autumn 2002, London remained the favoured investment location absorbing nearly 40 per cent of all Irish funds going in the UK. However, better returns and greater capital and rental growth in many regional centres have diverted such funds, particularly within the office sector." It shows that the Irish investor market is maturing, breaking the familiar link with London and encouraging investors into other regions. They are also chasing the money, according to yields returns.

City of London yields during 2003 were around 6.25 per cent, with 5.25 per cent in London's Mayfair and six per cent in Victoria. Birmingham and Manchester, however, reached 6.5 per cent, Leeds hit 6.75 per cent, Newcastle delivered seven per cent yields and Liverpool, that alternative Irish capital city, offered yields of about 7.25 per cent. The southeast, long considered a safe seat for Irish investors, also faltered. Rental growth in the City of London showed negative growth of 23.9 per cent and the southeast fell by 18.5 per cent. In Manchester, Leeds and Newcastle rental growth reached between 2.9 per cent and 4.5 per cent during 2003 however and a whopping 14.3 per cent in Liverpool.

Irish investors are dipping into all property segments, mainly office but with a liking for retail, says Mr Darac O'Neill of Nelson Bakewell. "The high street holds particular attractions," he says. "Most are looking for high street locations in good towns."

CB Richard Ellis Gunne has responded to this by opening offices in the UK, Brussels, Paris and Amsterdam. The tendency has been to stick with the familiar, the UK, but now money is flowing to the Continent, according to Caroline McCarthy, the company's director of UK/European Investment.

With more demand than supply in the Republic and stamp duty at nine per cent there was no incentive for portfolio holders to sell here because of costly reinvestment, she told a recent meeting on offshore investment. Yet there were attractive options in both the UK and on Continental markets.

The company noted a strong office sector bias for Irish investors through the year, taking up about 65 per cent of the available capital. High street retail took another 27 per cent with only a small fraction going into industrial. Lisney's created an "Irish Desk" to handle this demand, channelled through its associate firm, Cushman & Wakefield Healey & Baker. This conduit has dealt with a significant amount of business over the past months, both in London but also in the regions.

"High street retail properties let to "household brands" have proved extremely popular with many private Irish investors over recent months, regardless of geographical location," says Hargaden. "This move beyond the traditional safe haven of the southeast is a result of intense competition to secure properties rather than reduced confidence as seen in the office sector." Nor has this has meant an abandonment of the more traditional haunts of the Irish investor. The third quarter of 2003 saw a renewal of interest in central London, property consultants indicate, with well-let stock in all sectors commanding strong interest from the Irish.

This was particularly true of the City of London where by the end of the year there was about €4.3 billion of stock available. In fact the Irish were significant players there along with several German funds and Middle Eastern investors, heady company indeed.

What the future holds depends on factors such as exchange rates and the overall economic situation, but availability does not seem to be an issue given the new broad spectrum approach to the overall UK market.

A more interesting question is whether the Irish remain focused as at present on the UK or move further afield during 2003. Gunne's new Continental offices are experiencing steady interest and have property options which have the great advantage of sitting within the Euro zone and free of exchange rate doubts.

About 90 per cent of the total Irish international action is targeted at the UK, with about 10 per cent flowing towards the Continent. Yields through 2003 in Paris of six per cent, 6.25 in Amsterdam and 6.5 per cent in Brussels could coax more money into these markets and away from the UK.