Private rental sector has highest ever share of investment market

The private rental sector had its highest ever share of the investment market last year following deals worth €533 million in the final quarter, according to a new report by estate agent Savills Ireland.

There was a total of €3 billion invested in Irish property in 2020, which was just ahead of the ten-year average of €2.9 billion, the Ireland Investment Market report said.

The private rental sector remained in high demand in the final quarter, with deals worth €533 million bringing full-year expenditure to just under €1.2 billion.

This brought the sector’s share of the investment market for 2020 to 39 per cent – its highest ever share and “reflective of the defensive characteristics of this sector”, the report noted.

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The report pointed to several noteworthy transactions in the sector during the final quarter, the largest of which was the off-market sale of assets worth €140 million.

Elsewhere, there was the sale of Blackwood Square on Dublin’s north side by Cosgrave Property Group to Round Hill Capital/QuadReal for €123.5 million.

Savills Ireland director of research John Ring said the sector’s appeal to investors is driven by the State’s high population growth relative to the rest of the EU, as well as low vacancy rates.

“Rental growth has moderated and the third quarter Residential Tenancies Board index reported private rental growth of 0.9 per cent year-on-year in Dublin,” he said.

Elsewhere, the office sector accounted for 41 per cent of total turnover. More than €365 million worth of office assets were sold during the final quarter, bringing the total turnover for the office sector to just over €1.2 billion in 2020.

Two of the largest office transactions took place in the fourth quarter as Amundi bought 28 Fitzwilliam for €177.5 million from the ESB, while Deka bought Baggot Plaza from Kennedy Wilson for €141 million.

Domhnaill O’Sullivan, investment director at Savills Ireland, said: “Significantly, four of the top five transactions occurred after the first quarter when the pandemic had already reached Ireland, and all were acquired by European buyers.

“This activity reflects that Dublin offices continue to offer attractive yields at a European level, but also the continued confidence that institutional buyers have in the office market more generally.”

Meanwhile, private equity investors and institutional investors were the dominant buyer types in 2020, making up 72 per cent of total flows over the year.

Speaking generally, John Ring, director of research at Savills Ireland, said the State’s economic stability should help it to attract investment.

“In the aftermath of the global financial crisis, it was the uncertainty regarding the sustainability of Ireland’s government debt profile that resulted in commercial property yields spiking and prices falling,” he said.

“While continued monetary support from the European Central Bank means these issues are unlikely to come to the fore in the next year or two, the pandemic could bring some countries’ debt sustainability into question once again at some future point.

“As a result, global real estate investors will place even more importance on the macroeconomic stability of the country when deciding where to invest their money in 2021.

“In this context, Ireland’s relative economic stability during the pandemic period should help it attract further investment this year.”

Looking ahead, the report said buildings without green credentials will struggle to attract capital from institutional portfolios, which will lead to a widening in the pricing spread between new and secondary buildings, compared to what we have been used to historically.

There is a “wall of money” seeking to deploy in the office sector for the right income streams, specifically green buildings with more than 10-years of A rated income remaining. This will see yields contract to 3.5 per cent in 2021.

Mr O’Sullivan added that the large spike in Covid-19 cases in early 2021 and the subsequent lockdown and restrictions on mobility “will dampen market activity” in the first quarter of 2021.