Irish Investment Market Review Q3 2015

Transcription

1 Irish Investment Market Review Q3 2015

2 Irish Investment Market Q The third quarter of 2015 saw approximately 500 million invested in the Irish property market, bringing total investment in the year to date to 2.2 billion. This compares to 2.9 billion in the same period in 2014, indicating a moderate slowdown in the pace of investment activity. That said, investment turnover for the year to date is still running well ahead of the long-run average. Investment volumes in the third quarter were boosted by a number of big ticket transactions, the most significant being the acquisition of a mixed portfolio of prime retail and suburban office buildings known as the Sovereign Portfolio by Irish Life for a reported 154 million. The portfolio, sold by Royal London Asset Management, reflects a 30% increase on the guide price and a net initial yield in the region of 4.5%. Other notable sales during the third quarter include the sale of Block R on Spencer Dock, a Grade A office block located in the North Docklands area of the CBD, for a reported 104 million to the Central Bank. Furthermore, US investment firm, Invesco Real Estate, acquired the Frascati Shopping Centre in Blackrock, Co. Dublin, for in excess of 69 million. Data available to date would suggest that approximately 3 billion will transact in the Irish investment market this year, excluding loan sales, a very robust volume relative to historical investment trends. Figure 1 Irish Investment Market Turnover, bn* * deals greater than 1m Table 1 Top 5 Investment Transactions, Q Asset Price ( ) Sector Vendor Purchaser Sovereign Portfolio 154m Mixed Use Royal London Asset Management Irish Life Block R Spencer Dock 104m Office Receiver Central Bank Frascati Shopping Centre 69.1m Retail Private Invesco Bank Portfolio 48m Retail Gannon AIB 57/58 Grafton Street, Dublin m Retail Duff & Phelps Irish Life * excludes loan sales, trading assets and auction sales 2 Q Irish Investment Market Review

3 Investment by Sector In Focus: Office Investment Offices remain the most popular asset class among investors, with solid demand in Dublin s CBD alongside strong occupier activity has seen no let-up in the weight of capital chasing prime office assets. Office investment volumes in the first three quarters have been very strong with over 1.3 billion worth of investment assets transacted in the year to September, commanding the highest share of overall investment activity at 59%. While transaction levels in the overall Irish investment market will not reach the record breaking levels transacted in 2014, the share of office investment transactions is heading for a bumper year with turnover expected to reach in the region of billion, significantly higher than the level of activity recorded during the corresponding period in That said, mixed-use activity in 2014 comprised a significantly higher proportion of office investments than in An analysis of the rolling annual level of office investments reveals strong and consistent gains over the course of 2015 and improvements relative to earlier in the recovery cycle. Figure 2 Investment Volume by Sector, Rolling annual Figure 3 Office Investment, YTD Q vs YTD Q Q Irish Investment Market Review

4 Investment by Sector Office Investment Figure 4 Office Investment by Location, YTD 2015 Office investment remains firmly focussed in Dublin, accounting for 93% of office investment in the year to date. However, the investment market in Dublin remains polarised with the CBD continuing to outperform the secondary and suburban markets. The CBD accounted for approximately 94% of all office investments in the capital in the year to September. However, with demand ahead of supply for prime office assets and with yields at, or close to, previous peak levels for prime CBD offices, investors will target prime offices in markets adjoining the CBD that offer good prospects for capital and rental growth. A key such asset on the market is the mixed-use office and multi-family investment, Elmpark Urban Campus, which is on the market guiding 185 million. While overseas capital remains the dominant source of capital, its share of office investment has declined over the course of the year. Significant yield compression in the office sector has seen international private equity funds increasingly turn to secondary assets and higher yielding asset classes such as retail. Domestic investors, in particular institutional investors and REITs, have been very active, accounting for a third of all office investment and six out of the top ten office transactions in the year to September. Many of the international funds who acquired assets in 2012, 2013 and 2014 are taking advantage of the buoyant investment market and disposing of these assets. Figure 5 Office Investment by Source of Capital, YTD 2015 (%) Table 2 Top 5 Office Transactions, YTD 2015 Asset Price ( ) Location Quarter Vendor Purchaser Project Molly 350m Dublin Q Lone Star Starwood Property Trust 4 & 5 Grand Canal Square 233m Dublin Q NAMA Union Investment Block R Spencer Dock 104m Dublin Q Receiver Central Bank Bishops Square 92m Dublin Q King Street Hines Riverside One, Sir John Rogerson s Quay 80.5m Dublin Q Harcourt Life Assurance Company IPUT 4 Q Irish Investment Market Review

5 Investment by Sector Retail Investment Following a robust year for retail investment in 2014, the retail sector has had a very buoyant opening nine months of While retail investor activity got off to a somewhat slow start in 2015 with approximately 45 million transacted during the opening quarter, the second quarter witnessed a significant leap in activity with over 257 million worth of retail investment transacted during the period. The third quarter also witnessed robust demand with approximately 158 million invested, bringing the total value of retail investments to 460 million in the nine months to September; this compares to 607 million during the corresponding period in Retail turnover accounted for approximately 21% of overall investment activity in the year to September, on par with the corresponding period in However, an analysis of the rolling annual level of retail investments reveals strong gains over the past twelve months relative to earlier in the recovery cycle. While 2015 has seen strong performance in asset sales, the high point for the retail market in 2015 has been the sale of NAMA s Project Jewel. The loan portfolio secured against prime Dublin retail property, which attracted several bidders from across the globe, was acquired by a joint venture between Hammerson plc and Allianz Real Estate Germany GmbH for a reported 1.85 billion. Figure 6 Retail Investment by Type, YTD September 2015 (%) The portfolio of loans, anchored by Dundrum Town Centre, Ireland s only super prime shopping centre, also includes a 50% interest in the ILAC Centre and Swords Pavilions, together with a number of development sites and other assets. The sale demonstrates a vote of confidence in Ireland s retail property market and the strong appetite that exists for prime retail investment opportunities at present saw an increase in retail portfolios as a method of disposal and this trend continued during A number of significant portfolios transacted in the year to date, including The Cornerstone Portfolio which was acquired by New York-based hedge fund Davidson Kempner for a reported million. The portfolio consists of six shopping centres including Athlone Town Centre and a major stake in MacDonagh Junction shopping centre in Kilkenny. Also included are Gorey Shopping Centre in Wexford, Tipp Town Centre in Tipperary, Westside Shopping Centre in Galway and Orwell Shopping Centre in Templeogue, Dublin 6W. 5 Q Irish Investment Market Review

6 Investment by Sector Retail Investment Other notable portfolio sales include the sale of the Bank Portfolio for a reported 48 million and the Harvest Portfolio, comprising five regional shopping centres, sold by NAMA to Davy s for a reported price of 40 million. The most significant single asset sale during the nine month period included the sale of the Frascati Shopping Centre in Blackrock, Co. Dublin, acquired by US investment firm, Invesco Real Estate for in excess of 69.1 million. Furthermore, Manor West Shopping Centre and Retail Park in Kerry was purchased by Marathon Asset Management for approximately million. Overseas investors continue to look to Ireland to deploy capital accounting for 55% of overall retail spend, with US investors at the forefront followed by the UK. That said, the share of domestic investors has increased in 2015 accounting for 38% of investment, up from 21% on the comparable period in Performance in the retail sector is expected to remain strong in the fourth quarter, supported by improving retail headline indicators such as consumer spending, retail sales and sentiment. In addition, there is a significant quantum of retail investment currently sale agreed, including a number of shopping centres and the National Portfolio, comprising five retail parks. In relation to other asset classes, the multi-family sector was stagnant in the third quarter of the year, this followed a robust volume of activity in the opening six months of the year which saw the volume of residential investment reach million. The falloff in activity in the third quarter is not surprising given the uncertainty around the introduction of rent control measures by the Government and the potential impact on the sector. Activity in the industrial market picked up in the third quarter relative to previous quarters but remains low in terms of overall investment, accounting for just 1%. 6 Q Irish Investment Market Review

7 Investment by Location While central Dublin continues to lead the way in terms of overall investment activity in Ireland, 2015 has seen investment outside of the capital increase considerably. Figure 7 Investment Volume by Location, Q The transactional share outside of Dublin stood at 17% at the end of September, this compares favourably with 9% during the corresponding period in While 2014 set a new high watermark for Irish commercial property investment, 2015 has witnessed soaring levels of investment outside of Dublin with a resurgence in the Cork investment market in particular. A total of 90.1 million was invested in Cork commercial real estate during the first nine months of 2015, considerably higher than the corresponding period in 2014 and already outstripping the previous high of 79.7 million recorded in 2014 as a whole. In addition, the recent purchase of the Clarion Hotel by Dalata Hotel Group for in excess of 35 million will significantly strengthen investment for 2015 as a whole. On a sectorial basis, while office investment remains firmly focussed in Dublin, accounting for 93% of office investment in the year to date, a key trend evident in 2015 was the rise in the volume of retail investment outside of the capital. Approximately 57% of overall retail investment turnover took place outside of Dublin, with activity strongest in Co. Kerry, Co. Cork and Co. Meath. Table 3 Prime Yields Prime Yield Q Q Q Trending Office 4.25% 4.25% 5.00% Stable Retail 4.00% 4.50% 5.25% Stronger Industrial 6.00% 6.25% 7.50% Stronger 7 Q Irish Investment Market Review

8 Authors Marian Finnegan Chief Economist, Director Research +353 (0) marian.finnegan@dtz.ie Siobhan Corcoran Associate Director Research +353 (0) siobhan.moloney@dtz.ie Patricia Ward Director, Investments +353 (0) patricia.ward@dtz.ie About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader in property services. With Irish offices in Dublin, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation This report should not be relied upon as a basis for entering transactionswithout seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Sherry FitzGerald.