Overseas investors now see the prime Irish office sector – which is currently valued at a rental yield of about 4 per cent – as "fully priced", offering little or no upside, members of new lobby group Irish Institutional Property said on Tuesday.
But they insisted the Republic will be spared a rerun of the crash seen more than a decade ago, even though the commercial property market is at a late stage in the cycle.
"Statistically, we are late cycle and now in the high probability of there being a downturn," Brian Moran, managing director of US property group Hines's Irish business, said at the launch of the new lobby group. However, he added that the Irish commercial property sector "has a natural extension to it" as the market continues to "catch up" after the crash.
In Dublin, the establishment of technology campuses for US tech giants such as Google, Facebook and Amazon "has led to another natural extension beyond the natural cycle" in the office sector.
The third element underpinning the market is that “we now have longer-term, patient capital that has for the most part replaced speculative, or short-term, highly leveraged capital”, Mr Moran said, adding that these more professional, institutional investors are prepared to invest through the cycle.
“When we do see the natural end of the cycle, it shouldn’t be anywhere near as volatile or as deep as it was the list time around,” he said. “Inevitably it will happen. When? We don’t know. But we are not going to make a run for the door when that happens.”
The lobby group's 10 founding members – including Hines, Kennedy Wilson and publicly quoted property vehicles Green Reit, Ires Reit and Hibernia Reit – have been among the most active buyers of Irish property assets since the crash as banks and the National Asset Management Agency (Nama) oversaw the sale of tens of billions of euro of assets that were previously in the hands of highly indebted domestic developers and investors.
"We have moved from a speculative debt-based funding model to the current model enabled by long-term institutional capital," said Pat Farrell, chief executive of Irish Institutional Property. "This has been a necessary shift and will ensure a more stable property market, which is in the best interest of the economy."
Responding to comments from a UN rapporteur in a letter to the Government in March that heavy investment by funds and trusts into rental property is making the market unaffordable for individuals and led to the “financialisation of housing”, Mr Farrell said his members were meeting natural demand in the market.
“Any supply into the market is helping to close the gap [with demand],” he said.