Who owns what – and through what type of funding model – in the Irish commercial property market, has become of ever-greater interest to the Central Bank, with a special focus on the involvement of the non-banking sector.
A new report, entitled Who Invests in the Irish Commercial Real Estate Market?, published on Wednesday, says about €22 billion in commercial property transactions has taken place in the State since the financial crash in 2008.
While, prior to the crisis, domestic investors funded the bulk of activity, that has changed dramatically. Foreign investors increased their share of investment from about 20 per cent in 2008 to almost 80 per cent at a 2012 peak.
That has since fallen to just over 50 per cent – with North American investors (60 per cent) dominant over continental Europe (25 per cent) and Britain (about 10 per cent).
The dearth of hard data on the actual size of the Irish market is illustrated by the wide gap between the two estimated provided by MSCI (€26 billion) and Cushman & Wakefield (€48 billion).
Leaving aside the not inconsiderable presence of owners who are not resident in Ireland, the report states that property-focused investment funds account for over 61 per cent of commercial property assets here, with Reits (listed real estate investment trusts) holding over 13 per cent, insurance companies 14.3 per cent and pension funds just under 11 per cent.
Aside from the fact that between a fifth and a quarter of funding of these entities comes from banks, strategic moves in the face of global financing conditions have the potential to impact domestic funders – including banks, which still have about €12 billion in exposure to the sector, much of it by way of non-performing loans.
That’s the concern of the Central Bank. The study considers the diversification offered by non-bank investors to be welcome and expresses cautious optimism that the nature of those investors makes them less likely to imperil the financial system.
Its ultimate conclusion? More study is required to accurately assess the risks and vulnerabilities. In a week when the new lobby group, Irish Institutional Property, says key parts of the market are “fully priced”, time is of the essence.