Irish agencies prove a draw for British players

International link-ups could give domestic firms more clout, writes Claire Shoesmith.

Forget rents, yields and rising property prices, consolidation seems to be the buzzword of the Irish property sector at the moment.

This week alone London-based estate agent Savills agreed to pay €50 million for Hamilton Osborne King (HOK) and another British agent Colliers CRE increased its stake in Dublin-based Colliers Jackson-Stops in a deal worth €4.8 million. And if you listen to the experts, this is only the beginning.

"We are going to see it over and over again," says Shane O'Donnell, partner in the corporate department at solicitor William Fry, adding he wouldn't be surprised if more international players enter the Irish market in the future.

You don't need a degree to realise that property is hot in Ireland - house prices rose by 9.3 per cent in 2005, while the commercial property market delivered returns of about 25 per cent.

Not only that, if you're an Irish investor, property is hot overseas too. Last year Irish investors spent €6.8 billion on international and domestic property. Not a meagre sum for a population of about 4 million and CB Richard Ellis Gunne (CBRE), which compiled the figures, expects the spending spree to continue this year.

To do this investors need help, and luckily for them this comes in the form of estate agents.

Depending on who you speak to there are at least three major global players in the commercial property market that operate in the US, Asia and Europe. They are CBRE, Jones Lang La Salle and Cushman and Wakefield. Savills, which this week took over HOK, operates mainly in the UK market along with Knight Frank, while DTZ operates on a more European scale.

While internal markets and local contacts were the key words of the past, globalisation is the future, according to industry sources.

"That is the way the industry is going," says Pat Gunne, managing director of CBRE in Ireland.

"Until a few years ago the Irish market was very domestically orientated and this has changed significantly over the past few years."

Gunne, whose own business started the consolidation ball rolling last year when it was taken over by CB Richard Ellis in a deal worth $24.6 million (€19.5 million), believes we will be seeing more and more consolidation in the future.

Paul McNeive, managing director at HOK agrees. It was his own company's lack of global connections that was one of the deciding factors in signing the deal with Savills earlier this week.

"There is absolutely no doubt that an international link-up is critical," says McNeive, adding that the group will now be looking to use this to its advantage and expand this area of activity.

Still, even without this link - HOK lost its original alliance with CB last year as a result of the Gunne-CBRE tie-up - as much as 20 per cent of HOK's fee income came from outside of Ireland, so the potential for expansion is obvious. HOK had turnover of €37.5 million last year and hopes to grow this as a result of the takeover.

"International exposure is really important strategically and something that all businesses will be looking to increase," says Alan Cooke, chief executive of the Institute of Auctioneers and Valuers in Ireland.

"To be a major player in the commercial property market, full and active involvement in the global market is absolutely essential."

This doesn't bode well for the smaller players in the Irish market, one of whom is Lisney - one of Ireland's few remaining independent commercial property companies.

Some observers suggest that the 70-year-old Irish company, which employs 175 people in Ireland and had turnover of €18.7 million last year, according to the latest annual returns for Lisney Ltd and Subsidiary, may well be the next target. However Eanna Henderson, Lisney's finance director is defiant.

"As part of our ongoing business strategy we have examined the option of selling the company," he says. "But at the moment we are happy to remain independent and 100 per cent Irish."

Critical to this decision, he says, is the alliance the group already has with global player Cushman and Wakefield.

According to Henderson, this link-up is enough to meet the company's needs, though observers question the stability of such an arrangement in what is a very competitive market. Henderson did say however that Lisney would continue to monitor the situation with regards to a takeover or an acquisition.

According to Henderson, the new link-ups won't have a big impact on the Irish property market, though it's hard to believe that a company with more resources and international support won't have more clout when it comes to winning new business, particularly from overseas investors.

As one observer said, gone are the days when property companies could sit back and rely on repeat business. "Competition is tough out there," he says. "You have to be on your toes."

Speaking earlier this week both HOK and Colliers said it would be business as usual and rather than firing staff as is often common after a takeover, they would in fact be looking to expand their businesses.

Of one thing there's no doubt - bigger companies are definitely set to play a major part in the Irish property sector in the future.

CBRE's Gunne says in the long term he expects to see the same sort of consolidation in the commercial property sector that we have seen in the accountancy sector.

"You will either have to be very big player or very niche one," he says. "There certainly won't be room for anyone in between."

Despite this week's deals, corporate financiers find it hard to put valuations on estate agents using traditional measures such as price to earnings ratio.

They cited difficulties in ascertaining what incomes come from which part of the business, but were all in agreement that the fact the management had been retained in the deals was a good one.

"In this business the people and their contacts are the business," said one corporate financier, adding that the key for the acquirers going forward will be to ensure that they retain the staff.

They were also positive on the price - notwithstanding the difficulty of valuing the businesses - saying it seemed reasonable given the potential in the Irish market.

"From the point of view of an outside property consultants, the Irish market is attractive," says O'Donnell.

"There has been huge growth in consultants' volume and turnover which impacts positively on the bottom line."

It seems doubtful that the sector will escape further consolidation - indeed Savills said earlier this week it won't stop at HOK. One thing is for sure - any forays by global players into the Irish market are a big indication of confidence in the Irish market.

"It's certainly a sign they believe in what is going on here," says private property consultant Bill Nowlan. "And that's good news for us."