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1 Savills Dublin +353 (0) info@savills.ie savills.ie Savills Belfast +44 (0) belfast@savills.ie Savills Cork +353 (0) cork@savills.ie design March 2014

2 Investment Market Review and Outlook Ireland, March 2014

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4 Contents Introduction...4 Irish Investment Market - Review of Top Portfolio Transactions...8 Key Property Transactions...10 Key Property Transactions / Key Loan Sales / Economic Outlook Investment Market Outlook Investment Market Review and Outlook Savills 3

5 Introduction Summary Market turnover exceeded 1.9bn in % ( 1.71bn) of sales occurred in the Dublin market 4 portfolio transactions made up 34% of turnover value Office sales accounted for 60% of turnover by value 10 largest office transactions (not including offices traded in portfolios) made up 28% of turnover value Lot sizes > 50m accounted for 59% of total sales Irish based investors accounted for 47% of spend, whereas US investors accounted for 39% New REITs responsible for 10.6% of turnover ( 202m) Irish institutions became active again in 2013 Demand for prime assets will continue to outstrip supply Prime office yields will continue to harden as evidenced in final quarter of year Prime retail yields will be tested by increased supply and larger lot sizes Turnover expected to reach 2.5bn in 2014 Supply of loan portfolios set to increase Introduction There is now a growing sense that Ireland s economy is on a sustainable recovery path. Reflecting the progress that has been made in rebalancing the public finances, and the improved perception of Ireland on world markets, the country exited its EU/IMF assistance programme in December without recourse to an emergency credit line. This confidence appears to be justified by the latest national accounts data; GNP, which is the most representative barometer of activity in the Irish economy, expanded by 3.9% year-onyear in Q3. Meanwhile the strong labour market recovery which began almost two years ago has proved to be more than a flash-in-the-pan. Since Q the private sector has been generating 4,600 new jobs per month in net terms, and total employment has risen by 3.3% in the last year - a remarkable figure by international standards. All of this is feeding through to stronger demand in occupational markets. The numbers employed in professional services, ICT and administration have increased significantly since 2010 and this is driving strong net absorption in the Dublin office market. Consequently vacancy rates are falling quite rapidly and there is now limited availability of Grade A space in the best locations. In turn this has led to a recovery in prime rents and expectations of further increases in At the same time, jobs growth has led to an improvement in retail conditions. Household disposable incomes have now risen in successive quarters since Q1 2013, consumer sentiment is at its highest level since the summer of 2007, and the household savings ratio has fallen back to 8.4% - well below the EU average of 10.7%. As a result, rents in prime high streets and the best shopping centres have stabilised. The Irish residential market is also improving, although conditions vary by location. In Dublin, the surrounding commuter counties, and the main regional centres of Cork and Galway, strong population growth and limited building activity have led to a recovery in prices. However, outside of these locations vacancy rates remain elevated in many areas and prices are flat or, in some cases, still softening. Government policy continues to be supportive of real estate investment. It was announced in October s budget that the Capital Gains Tax exemption for properties bought and held for seven years would be extended by a further 12 months until the end of This, combined with Ireland s economic recovery and the improvement in occupier markets has driven a dramatic recovery, with total investment turnover reaching 1.9bn in 2013 its highest level since Savills Investment Market Review and Outlook

6 Irish Investment Market - Review of 2013 Investment Market 2013 was a year of two halves in the Irish investment market. Proceedings began with approximately 240m of investment property saleagreed / in legals, and a further 200m available for purchase. Investment Market Turnover by Location ,138,788, 10% By mid-year this had translated into 610m of completed deals a 6% increase on turnover for the entire year of Nonetheless, there was a distinct upturn in activity during the second half of the year. This was facilitated by a flow of new supply onto the market and by the sale of several large portfolios including the Opera Portfolio ( 306m), the Ulysses Portfolio ( 152m) and Project Arc ( 128m). By year-end, investment turnover had surpassed 1.9bn, the strongest performance in value terms since However, with asset values having rebased in recent years, the total number of transactions rose to a new record in With Ireland s economic recovery gaining traction and with global sentiment towards Ireland improving, there is a significant weight of international capital yet to be satisfied. However, demand is broadlybased and there has also been a rebound in domestically driven activity. The introduction of REIT legislation in the Finance Act 2013 has seen the successful launch of two new REITs - the Green REIT and the Hibernia REIT - with others likely to follow. This, in tandem with increased demand from established Institutions such as Irish Property Unit Trust (IPUT) and Irish Life, will further underpin an already strong investment market. Source: Savills Research 1,713,005,712, 90% Loc Loca on (No. of transac ons) Dublin (118) Rest of State (22) Investment Market Turnover Locational Demand bn Turnover (lhs) Transac ons (rhs) No. Deals As in the previous year, both the supply of and demand for investment property remained firmly fixed on the Dublin market in In volume terms, 118 of the 140 transactions that took place occurred in Dublin (83%). Meanwhile, 1.71bn of investment turnover (90% of total sales value) was accounted for by Dublin transactions. Of the 191m of investment sales outside Dublin, 91.8m was accounted for by just three deals; City Gate Office buildings in Cork ( 40m), Edward Square Shopping Centre in Galway ( 27.3m), and The River Lee Hotel in Cork ( 24.5m). Looking ahead, while Dublin will continue to be the primary focus of investors, we anticipate an increase in regional sales activity as new portfolios are brought to the market and national loan books that have traded in previous years begin to be broken up. Source: Savills Research Source: Savills Research Investment Market Review and Outlook Savills 5

7 Irish Investment Market - Review of 2013 Sectoral Demand Dublin offices remained the sector of choice for investors in Demand for this type of product was underpinned by a recovery in the occupational market which saw the overall vacancy rate fall from 20.2% to 15.3% during the course of the year. However, the availability of prime space is much tighter than indicated by this summary measure. For example, the vacancy rate for Grade A space in the traditional CBD is now just 4.1%, and this scarcity of good quality space in the best locations has driven prime rents up by around 16.6% in the year. Office sales accounted for 60% of total investment turnover compared with 75% in Ten office assets accounted for 28% of the total market turnover in 2013, with four of these, totalling 245m, being located in the Docklands area. As predicted in our previous reports, retail investment has increased substantially from 53m in 2012 to approximately 300m in As such, the retail sector accounted for over 16% of total market turnover by value in Five assets (Stillorgan Shopping Centre, The Arena in Tallaght, The Globe Retail Park in Naas, 103/104 Grafton Street and Edward Square Galway) accounted for 62% of the 300m subtotal. There is now an acute shortage of residential property in many parts of Dublin, and this has driven the demand for multi-family assets. Approximately 232m of multi-family transactions occurred in The largest of these was the sale of Clancy Quay in Dublin, a prime apartment development located near Heuston Station, to Kennedy Wilson for a price in the region of 82.5m. In another sizable transaction, the Gemini Portfolio, which contained three multifamily assets in Dublin and Cork, was purchased by the Comer Group for around 65m. Lot Size There was a strong appetite for larger lot sizes which came to the market in These attracted substantial interest from both institutional and private equity investors, driving premium prices at this end of the market. There were 11 transactions in the 50m plus lot size category, making up 59% of turnover. Five of these were purchased by US investors, five by Irish institutions and the other by a private Irish investor. Thirteen sales were completed in the 20-50m category. Nine of these were sold to Irish investors, two went to US investors, while German and Swiss investors each purchased a single asset in this price bracket. Together these thirteen transactions comprised 21% of total market turnover. Twenty-four further transactions involved lots of between 5-20m, while 48 were for lot sizes of 1-5m. The remaining 44 transactions involved deals of less than 1m each. Looking ahead, given the depth of capital that currently exists in the market, demand from international buyers for individual assets and portfolios of 100m or more remains strong. For a select group of these buyers scale is currently no barrier to a successful sale. Investment Market Turnover by Lot Size ,025,000, 5% 125,105,500, 6% 24,114,000, 1% Investment Market Turnover by Sector ,200,000, 8% 45,500,000, 3% 37,830,598, 2% 25,580,117, 1% 394,600,000, 21% 1,124,100,000, 59% 120,101,812, 6%, Sector (No. of transac ons) Offices (43) Retail (45) Mul family (16) Mixed Use (23) Hotel (2) 231,642,000, 12% 299,751,713, 16% 1,143,738,260, 60% Lot size (No. of transac ons) 50m+ (11) 20-50m (13) 10-20m (12) 5-10m (12) 1-5m (48) < 1m (44) Source: Savills Research Industrial (6) Other (5) Source: Savills Research 6 Savills Investment Market Review and Outlook

8 Irish Investment Market - Review of 2013 Origin of Demand American Investors remained very active, acquiring five of the top ten assets sold in Beverly Hills based Kennedy Wilson made two of the largest acquisitions, with the other large lots being acquired by Lone Star, King Street and Pimco / Brehon Capital. Most of the transactions below 10m were acquired by Irish Investors. One of the defining features of the market during 2013 was the return of Irish based investors acquiring assets of scale and competing with international private equity investors. Demand from this source was bolstered by Ireland s first REITs which invested 202m (11% of total turnover) during the course of With others likely to follow, we expect that REITs will form a significant part of overall market demand going forward. In total Irish investors acquired five of the top ten investments, with one institution - Irish Property Unit Trust (IPUT) acquiring two of the highest value office lots (1 Grand Canal Square, a prime office building multi-let to HSBC, Accenture and Activist, and Riverside II, a modern office building located on Sir John Rogerson s Quay). Most investments in the sub - 5m category were made by private Irish investors. Between these two categories, a diverse group including American, European, Asian / Far Eastern and private Irish investors were active in buying lots of 5m- 20m. Given the competitive tension in the market, and vendors emphasis on minimising execution risk, timescales to complete transactions remain tight. Consequently investors are increasingly choosing to close deals with cash and backfill with debt post-acquisition. Investment Turnover by Country of Buyer ,600,000, 107,500,000, 2% 6% 93,107,000, 5% Country of buyer (No. of transac ons) Irish (48) American (10) European (7) 737,100,000, 39% Unknown / Confiden al (67) Canadian (4) Asian / Middle East (4) 27,200,000, 1% 896,637,500, 47% Source: Savills Research Yields & Total Returns 2013 saw a significant tightening of office and multi-family yields. Retail yields have stabilised, but positive yield movements were held back by pressure on rental values. We estimate that prime office yields contracted by approximately bps during 2013, and prime multi-family yields by 100 basis points. Though these are significant movements over a short period, one has to point out that yields have been moving from an historically low base in Evidence of the movement in yields can be seen from the purchase and resale of Riverside II. This office building was acquired by AM Alpha in Q for a yield of 8.6%. It was subsequently resold in December 2013 for a price reflecting a yield of 6.3%. Though this is a yield movement of 230 basis points, we would point out that though the deal closed in Quarter the price had been agreed in Quarter hence the yield contraction would be measured over a two year period. This was the first re-trade of an asset bought in the cycle and is very good evidence of the movement in yields in the interim. IPD is the leading authority on property market performance in Ireland. IPD Quarter data show that Irish property made a total return of 12.7% in the year to Q4 2013, split between an in income return of 9.2% and capital growth of 3.2%. This is the first time since Q that we have seen a positive return on the capital side. Yield Matrix Q Sector Prime Secondary LT Average Offices 5.50% 7.00% 6.80% Retail 5.50% 7.50% 6.20% Industrial 8.00% 9.50% 8.10% Multi-family (net) 5.00% 7.00% n/a * The above yields are based on a market rented property with a lease term of ten years, to an institutionally acceptable covenant. *Long term average equivalent yields for offices based on Dublin 2 properties. Top 4 Buyers 1. Kennedy Wilson Acquisition of approximately 389m in two transactions including the Opera Portfolio and Clancy Quay. 2. IPUT - Acquisition of approximately 270m in five transactions including; 1 Grand Canal Square, Riverside II, A&L Goodbody HQ, Irish Airlines Portfolio and Georges Court. 3. Green REIT - Acquisition of approximately 202m in four transactions including Project Arc, EBS Building and Independent News & Media. 4. Pimco - Acquisition of approximately 152m in one single purchase of the Ulysses Portfolio. Investment Market Review and Outlook Savills 7

9 Key Portfolio Transactions Top Portfolio Transactions Portfolio Sector Price Initial Yield Vendor / Agent Purchaser / Agent Opera Portfolio Office & Retail 306,000, % CMBS / Cairn Capitol Kennedy Wilson / Savills Ulysses Portfolio Office & Retail 152,000, % Lloyds / JLL Brehon Capital & Pimco / CBRE Project Arc Office & Retail 127,600, % Danske / DTZ Green REIT / JLL Gemini Portfolio Multi-family / Retail 65,000, % Grant Thornton & KPMG / Savills Comer Group / Unadvised Irish Airlines Portfolio Office & Retail 50,000, % Irish Airlines / JLL IPUT / HWBC Opera Portfolio Location: Various Dublin & Cork Office & Retail Sale Date: Q4 / 2013 Sale Price: 306 million Initial Yield: 7.5% Approx. 51,097 sq m (550,000 sq ft) Vendor / Agent: CMBS / Cairn Capitol Purchaser / Advisor: Kennedy Wilson / Savills Opera Portfolio comprises 16 buildings including the Stillorgan Shopping Centre in Dublin, Merchants Quay Shopping Centre in Cork, and a number of office blocks that include Bank of Ireland s headquarters on Mespil Road, FAS s offices on Baggot Street, and KPMG s main Dublin offices. The portfolio provides a current rental income of approximately 22 million per annum. Ulysses Portfolio Location: Various Dublin Office & Retail Sale Date: Q4 / 2013 Sale Price: Region 152 million Initial Yield: 8.78% 50,771 sq m (546,511 sq ft) Vendor / Agent: Lloyds / JLL Purchaser / Advisor: Pimco / Unadvised Ulysses Portfolio comprises 14 offices, 51 retail units and 31 apartments with 90 leases / licences. The portfolio which comprises a total area of approximately 50,771 sq m (546,511 sq ft) has a strong weighting towards Government / Semi-State tenants with 53.45% of the passing rent and 44.48% of floor area attributed to these tenants. The portfolio provides a current rental income of million per annum. 8 Savills Investment Market Review and Outlook

10 Key Portfolio Transactions Project Arc Location: Various Dublin, Kildare & Limerick Office, Industrial & Retail Sale Date: Q4 / 2013 Sale Price: Region 128 million Initial Yield: 8.70% 75,000 sq. m (807,293 sq. ft.) Vendor / Agent: Danske Bank / DTZ Purchaser / Advisor: Green REIT / JLL Project Arc comprises three retail parks, three office buildings, two retail units, one industrial premises and a car park. The portfolio which has a total area of approximately 75,000 sq. m (807,293 sq. ft.) currently provides a rental income of 11.5 million per annum. The Gemini Portfolio Location: Tallaght Cross East, Dublin 24; Island Key, Dublin 3 and Orchard Gardens, Cork Multi-family Sale Date: Q4 / 2013 Sale Price: Region 65 million Initial Yield: 7.1% (Gross) Term Certain: N/A 640 apartments, approximately 18,720 sq. m. of commercial accommodation and a 48 bed hotel Vendor / Agent: KPMG and Grant Thornton on behalf of Ulster Bank / Savills Purchaser / Advisor: Comer Group / Unadvised Savills Investment Team recently exchanged contracts on Ireland s largest residential portfolio which consists of three modern, well located multi-family schemes producing a gross passing rent of approx million per annum. Irish Airlines Portfolio Location: 10/11 Molesworth Street; 17/18 Dawson Street; Blocks 2&3 Harcourt Centre, Harcourt Street; 47/49 St Stephens Green and Baggot Street Upper Office & Retail Sale Date: Q1 / 2013 Sale Price: 50million Initial Yield: 10.72% 24,154 sq. m. (Office); 2,500 sq. m. (Retail) Vendor / Agent: Irish Airlines Pension Fund / JLL Purchaser / Advisor: IPUT / Unadvised The portfolio comprised of five city centre properties including four office buildings and a Tesco retail store. The offices extended to a total of 24,154 sq. m. (260,000 sq ft) with tenants including the EU Commission, the Irish Insurance Federation, Mazars, Office of Public Works, Eircom and Caledonian Life. The total current passing rent of the portfolio was approximately 6.5million. Investment Market Review and Outlook Savills 9

11 Key Property Transactions Property Sector Price Initial Yield Vendor / Agent Purchaser / Agent 1 Grand Canal Square, Dublin 2 Clancy Quay, Islandbridge, Dublin 8 75 St Stephens Green, Dublin 2 Bishops Square, Kevin Street, Dublin 8 A&L Goodbody HQ, IFSC, Dublin 1 Riverside 2, SJRQ, Dublin 2 EBS Building, Burlington Road, Dublin / 104 Grafton Street, Dublin 2 Blocks A & B, City Gate, Mahon, Cork La Touche House, IFSC, Dublin 1 Office 93,500, % Private International / Unadvised Multi-family 82,500, % Grant Thornton / Savills Office Private & Confidential IPUT / Savills Kennedy Wilson / Unadvised P&C Lloyds / Green Lone Star / Savills Office 65,000, % IPUT & RBS / Savills King Street / Unadvised Office 58,000, % Private Syndicate / Weir & Conway IPUT / TWM Select Office 50,000, % AM Alpha / Savills IPUT / Knight Frank Office 46,500, % Lone Star / Unadvised Retail 40,000, % David Daly / Unadvised Green REIT / Unadvised GLL Real Estate / HWBC Office 40,000, % Private / Unadvised Irish Life / HWBC Office 35,000, % Warren Private / Unadvised Credit Suisse / HWBC 1 Adelaide Road, Dublin 2 Office 33,000, % Eircom / Bannon Irish Life / CBRE The Harcourt Building, Harcourt Street, Dublin 2 New Century House, IFSC, Dublin 1 The Forum, Lower Commons Street, Dublin 1 Office 31,500, % Deloitte / Savills Davy Target Investments Plc / Unadvised Office 28,500, % NAMA / JLL & HTMOR CMP Investment Partners / Unadvised Office 27,300, % NAMA / Knight Frank Atlas Capital / Unadvised Edward Square, Galway Retail 27,300, % NAMA / DTZ & DNG Signature Capital / Unadvised 1 Grand Canal Square Location: Dublin 2 Office Sale Date: Q4 / 2013 Sale Price: Region 93.5 million Initial Yield: 6.29% Term Certain: 9 years (WAULT) 118,000 sq ft & 60 basement car spaces Vendor / Agent: Private / Unadvised Purchaser / Advisor: IPUT / Savills Prime third generation office building located in Dublin s Grand Canal extending to approximately 118,000 sq ft. The property is multi-let to tenants including HSBC, Accenture and Activas producing a total current passing rent of approximately 6.1 million per annum. 10 Savills Investment Market Review and Outlook

12 Key Property Transactions Clancy Quay Location: Islandbridge, Dublin 8 Multi-family Sale Date: Q2 / 2013 Sale Price: Region 82.5 million Initial Yield: 6.50% Term Certain: N/A 420 apts, approx 3,408 sq.m. of commercial accomm. and a 3.42 ha (8.46 ac) adjoining site Vendor / Agent: Grant Thornton on behalf of Lloyds and Danske Bank / Savills Purchaser / Advisor: Kennedy Wilson / Unadvised Landmark Multifamily Investment currently producing a gross residential income of approx million with an ERV of approx. 6.8 million per annum on completion of fit out and full letting. Adjoining 3.43 ha. (8.46 ac.) site of undeveloped land benefits from full planning permission for 323 residential units, a hotel, educational buildings & a crèche. 75 St Stephen s Green Location: Dublin 2 Office Sale Date: Q4 / 2013 Sale Price: Private & Confidential Term Certain: WAULT c years 9, sq. m. & 65 car spaces Vendor / Agent: Lloyds / Unadvised Purchaser / Advisor: Lone Star / Unadvised Seven storey over basement 3rd generation multi-let office building extends to approximately 9, sq. m. (102,098 sq. ft.) with 65 basement car spaces. The property is multi let to tenants including Hedgeserv, Maples and Calder, Cantor and EMPGI with a current rent of approx. 6.18m per annum. Bishops Square Location: Kevin Street Lower, Dublin 2 Office Sale Date: Q1 / 2013 Sale Price: 65 million Initial Yield: 9.87% Term Certain: c. 9 years 14,266 sq. m. & 64 car spaces Vendor / Agent: Irish Property Unit Trust & PwC as Receiver / Savills Purchaser / Advisor: King Street / Unadvised Six storey 3rd generation multi-let office building extends to approximately 14,266 sq m (153,558 sq ft) with 64 basement car spaces. The property is fully let to 5 AAA covenants tenants with a current rent of approx. 6.7 million per annum. Investment Market Review and Outlook Savills 11

13 Key Property Transactions / Key Loan Sales Economic Outlook 2014 A&L Goodbody HQ Location: IFSC, North Wall Quay, Dublin 1 Office Sale Date: Q1 / 2013 Sale Price: 58 million Initial Yield: 6.6% Term Certain: c. 12 years 9, sq. m. & 119 car spaces Vendor / Agent: Private Syndicate / Weir & Conway Purchaser / Advisor: IPUT / Unadvised Six storey over basement 3rd generation multi-let office building extends to approximately 9, sq. m. (107,473sq ft) with 119 basement car spaces. The property is let to the partners of A&L Goodbody Solicitors with a current rent of approx. 4m per annum. Riverside 2 Location: Sir John Rogersons Quay, Dublin 2 Office Sale Date: Q4 / 2013 Sale Price: 50 million Initial Yield: 6.28% Term Certain: 7 years 6, sq. m. & 71 car spaces Vendor / Agent: AM Alpha / Savills Purchaser / Advisor: IPUT / Knight Frank Modern Grade A office building which extends to approximately 6, sq. m. together with 71 basement car spaces. The property is multi let to tenants including Bank of New York Mellon and Beauchams Solicitors with a current rent of approx million per annum. Top Loan Sales Name Vendor Purchaser No. of Assets Loan Price Price Paid Haircut Project Aspen NAMA Starwood Capital Group, Key Capital m 200m 75% Project Club NAMA Car Val Undisclosed 250m 80 m 68% Economic Outlook 2014 After a lacklustre opening to the year, the Irish economy rebounded over the course of This was largely driven by a strong recovery in the labour market. In net terms, 60,900 new jobs were created in the 12 months to December 2013, leading to a 3.3% annual increase in employment. Moreover, recent live register data suggest that the labour market improvement has carried through over the winter months, with the numbers signing-on falling year-on-year for the 26th consecutive month in January. The positive impact of this is being felt in a number of areas. With more people at work, total tax receipts increased by 3.2% in This will help to relieve pressure on the public finances. Therefore, and despite the fact that one further hard budget will be necessary to bring the budget deficit to its sub-3% target by 2015, there is growing recognition that the end of austerity is within sight. In addition to directly underpinning the demand for office space, the labour market recovery has contributed to an improvement in consumer sentiment which is now beginning to crystallise in the retail sales data - total sales rose by almost 9% in the year to January, while consumer sentiment remains on an upward trajectory. This dynamic is expected to continue and to underpin the demand for retail space as we go through Traditionally, Ireland has had an export-driven economy. However, arising from patent expiries in the pharmaceutical sector, exports have 12 Savills Investment Market Review and Outlook

14 Investment Market Outlook 2014 Consumer Sentiment Index Jan Jan 2014 GDP Growth Ireland s Main Trading Partners Index: Q = Jan-97 Sep-97 May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 % Change Y/Y Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 US UK EU (28) Euro Area Source: KBC/ ESRI Source: Savills Research underperformed over the last 18 months. This effect is likely to work its way out of the figures over the coming year. At the same time, exports will be boosted by an improvement in the global economy. In particular, the economies of our key trading partners the UK and the US have both recovered strongly in recent quarters. At the same time, the European economy, which was in recession through much of 2012 and the first half of 2013, has also begun to recover. Investment Market Outlook exceeded all expectations in relation to investment sales volumes has opened so far with approximately 750m of transactions agreed or in legals and an estimated 600m pipeline of stock known to be coming to the market in the short term. Although there is a significant volume of stock still to be traded as banks seek to deleverage their positions, and despite the fact that there appears to be very little upside limit to the demand from investors, vendors are being careful in relation to the timing of stock releases to the market. Combined with the limited physical resources of investors chasing stock, we would see volumes for 2014 reaching around 2.5bn excluding loan sales. This figure could be significantly higher however, if any of the banking institutions currently holding large volumes of stock were to decide to de-leverage via large portfolio sales. In such an instance volume figures could increase significantly. Yields will continue to harden in all sectors as investors start to look beyond prime assets in order to get value. The spread of investor types from core to value-add means that, for the first time in 5 years, there is competitive demand in all sectors of the investment market. Rental growth will become a more significant factor in investor appraisals with hard evidence of growth in the office and multi-family markets. Reflecting improvements in the labour market and recovering consumer sentiment, prime retail rents also look to have bottomed out. Thus, competition to acquire retail assets such as high street, shopping centres or retail parks will be driven by investors expectations of growth. Demand Given the acceleration in prices over the last 12 months there was concern that international investors may look elsewhere in search of value. However we have found that international demand remains strong and foreign investors have become, if anything, more committed to Ireland. Indeed, a number of large players e.g. Blackstone has recently entered the Irish market. This is being driven by an increasingly positive perception of the Irish economy and of Irish growth prospects, arising from a successful fiscal adjustment programme. However, these international investors will face significant competition from domestic institutions such as IPUT, Irish Life, Green REIT and Hibernia REIT who, between them, could have in the region of 1bn to deploy on Irish investment properties. There is significant demand in all lot size categories. However, it is interesting to note that really strong competition exists for larger lot sizes, with portfolios in the region of m having been actively traded in 2013, with significant competitive bidding. There appears to be no upper limit to the size of a potential portfolio that could be acquired by investors as they look to avail of economies of scale and build significant platforms in Ireland. Whereas we expect very strong demand in the office and multi-family sectors to continue, we also foresee activity in the shopping centre and retail park markets, both in Dublin and in the regions, as investors look for value opportunities in The retail market has had significant challenges in the last few years. However we believe investors recognise that the downward pressures on this market have eased, and the sector now offers an opportunity. Investment Market Review and Outlook Savills 13

15 Authors Supply The supply of stock to the market will continue to be dominated by the de-leveraging processes of NAMA and the banks. Although most domestic institutions are now in acquisition mode, some stock will come to the market from this source as funds look to reposition their portfolios and take advantage of the quality product that is now becoming available. We will also see some sales from the private sector. This will not necessarily be driven by pressure from banks or financial institutions to sell, but rather by investors seeking to take advantage of the improved pricing that is available in order to explore other development type opportunities. We envisage in 2014 that there will be an increased focus on portfolio sales, as evidenced by the success of a number of sales in The demand for portfolios offering value-add opportunities is strong and investors who are looking to deploy large sums of capital are keenly chasing these opportunities. We also see the size of portfolios will increase as vendors become increasingly comfortable that competitive demand exists over the 300 million level. In looking at supply by sector there will continue to be a focus on the office and multi-family market given the significant increase in pricing over the last year. As banks continue to look to reduce their exposure, we see a significant increase in the supply of shopping centres and retail parks to the market. The first sales in this sector will be keenly watched by all commentators as these will set a trend and a pricing marker for the stock that will come later in the year. This is an exciting sector for 2014 and one that investors are preparing for. As vendors become comfortable that demand exists in pretty much all sectors, from prime to secondary and from office to retail, we will see a larger cross section of investment products coming to the market. These will offer different opportunities to investors which will allow them to use their skillsets to drive value. Domhnaill O Sullivan, MRICS MSCSI Director, Investments +353 (0) domhnaill.osullivan@savills.ie Domhnaill is a Director of Savills Ireland and has over 16 year s experience in the commercial property industry in Ireland and the UK with a background in institutional valuations, consulting, agency and in recent years major investment sales and acquisitions. He has both a national and international focus and works closely with our cross border investment teams. Domhnaill s expertise in the commercial property market has seen him involved in some of the largest investment transactions in Ireland and the UK for many years including 78 Sir John Rogersons Quay in Dublin Docklands, Finsbury Dials in London City and Peacocks SC in Woking. Fergus O Farrell, MRICS MSCSI Director, Investments +353 (0) fergus.ofarrell@savills.ie Fergus is a Director of Savills Ireland and a 20 year veteran of the commercial property industry specialising in Irish and international investment advice and transactions. He provides strategic investment advice to private clients and syndicates, property companies, institutional investors, banks and receivers. Through his experience in sales and acquisitions he has developed a working knowledge of legal, technical and taxation issues involved in investment property transactions. Fergus has been involved in some of the largest investment transactions in Ireland for many years including Riverside 2 in Dublin Docklands, The Alliance in Dublin, The Park at Carrickmines and Opera Avenue in Cork. Contributors John McCartney Director of Research Savills Ireland Larry Brennan Chairman Savills Ireland Roland O Connell Director, Offices Savills Ireland 18 Savills Investment Market Review and Outlook

16 Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. All reference to floor size is approximate. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.