Over €1bn invested in Irish market

MarketReportThough the magical €1 billion figure will easily be exceeded, the final tally will be distorted by one exceptional deal, writes Jack Fagan

Investments in the Irish commercial property market are set to exceed the €1 billion mark for the first time this year, according to agents CBRE Gunne.

However, the final tally is distorted by one exceptional deal, the €365 million forward funding of the extension to the AIB Bankcentre in Ballsbridge, Dublin 4.

Though the magical €1 billion figure will easily be exceeded, the overall turnover is unlikely to be significantly different from last year's total of €900 million if the AIB transaction is excluded.

The final figure might give the impression that 2005 has been a runaway year for the commercial property market - it hasn't.

There have been more than a dozen sizeable deals valued at over €20 million but, in general, investment opportunities have never been so scarce, particularly for small and medium-sized lots.

Even the institutions and large investors have had to step up their search in the UK for suitable properties because of the intense competition for the limited supply here and the fact that few investments are sold off-market any more because of the Irish buying frenzy.

The high value sales that dominated the Irish market this year included the €140 million sale of the Scottish Provident's Irish portfolio; the €60 million sale of the Royal Liver Retail Park on the Naas Road in west Dublin; the €100 million sale of The Atrium offices in Sandyford; the €38 million sale of The Ashleaf shopping centre in Crumlin, and the €24.75 million sale of the redeveloped retail facilities at 14-18 Aston Quay.

Gunne's latest research report says that there is a "steady supply of investment opportunities due to come on the market over the next few months which should ensure that 2005 will prove to have been a very healthy year for the Irish property investment market".

The report also says that total ungeared returns of 9.5 per cent were achieved from commercial property in Ireland in the first six months of the year, "leading us to believe that 2004 returns will undoubtedly be beaten this year".

Gunne predicts that total returns of 15 per cent are achievable on the basis that yields continue to contract and rental growth is "is emerging in the occupational markets". The agency says that this is particularly evident in the office sector, where prime headline rents in Dublin city centre now exceed €538 per sq m (€50 per sq ft) - the third highest in Europe after London and Paris.

Gunne says that the retail sector continues to be the star performer with prime yields reaching all time lows of 3 per cent. The office market is also performing well, as evidenced by the recent sale of 92-94 St Stephen's Green for €30 million. Prime yields in the office sector are now of the order of 4.5 per cent on average, while prime industrial yields are about 5.75 per cent.

Gunne claims that Irish investors are on course to invest over €5 billion in commercial property in the home and overseas markets this year. It says that investments in the UK market alone are expected to be over €3 billion this year despite the difficulties being experienced in sourcing good quality product.

Caroline McCarthy, director of overseas investment at Gunne, says that in the first six months of 2005, Irish investors completed 29 transactions across Europe, equating to a total spend of €500 million.

The agency estimates that 80 per cent of these transactions related to office properties with the remainder comprising retail investments.

In recent years, Irish investors have predominantly focused their attentions on Belgium, France and the Netherlands. While these countries still account for three-quarters of all the deals completed, other countries providing investment opportunities included Poland, Romania, Germany, Hungary and the Czech Republic.