Property Market Update 29 th March 2017
Welcome Gerry Devitt Managing Director
What s Going On In Harvest these days? We ve recently hit 1 Billion in AUA Adjudged the Best Retail Pension Advisory Firm for the Second Year MiFID 2, MiFIR, IDD, GDPR, AML 4....... 160k Pension Schemes in Ireland today 150 tomorrow?? So, business as usual then!
Investing in Property Terry Devitt Investment Director
The World We Are Living In
Model Portfolio Split by Asset Class Cash 14% Absolute Return 14% Equities 40% Private Equity 5% Commodities 0% Property 27% Bonds 0%
Property vs Equities vs Bonds over 20 Years
Investing in Property Funds & REITS Direct Investments Property Options Syndicated Investments Development Properties
Investment Option 1* - Funds and REITs
Funds and REITs cont d - Example Windwise Property Fund (SSGA) 354m* portfolio of prime commercial property 80% Ireland and 20% UK Investment Access Monthly Distributes c.4% per annum Minimum investment of 100,000 Open to Pensions, ARFs and other investors State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland (*Fund value at 31/12/2016)
Funds and REITs cont d IPUT -10 Year Price Chart Still c.20% off its 2007 high but holders compensated by c.50% in distributions over 10 years Price still 20% below 2007 high but investors have received c. 50% in dividends since then Today 2012
Investment Option 2** Syndicated Investments
Investment Option 2** Syndicated Investments - Example Gordian Limited Syndicate of 60 Pension and Personal Investors 70% Debt Funded Three Retail Properties in UK South East 2009 Valued at zero 2016 Wound up returning 160% to investors
Investment Option 3** Development Partnerships What are they? This is where a consortium of investors wholly or partly replace the bank to finance a property development (usually residential). Funds usually attract an interest rate of c.10% per annum and receive a share of the profits on completion. Investment term is usually around 2 years
Development Partnerships cont d
Development cont d - Example Scheme Residential Development in Islington in 2013/14 Two townhouses and four flats Gross development value of 3.5 million Loan notes at 12.5% plus 50% profit share Investors get second charge on assets Development completed in 18 months returning capital plus 65%
Development cont d - Example Schemes Harvest has Launched a Series of schemes over past two years in partnership with developers Henley (Oxfordshire) Maidstone (Kent) Grove Road (Glasnevin) Howth Road (Clontarf) Church Road (Killiney)
Investment Option 4** - Direct Investment
Investment Option 4** - Direct Investment Individual Property Purchase Residential or Commercial Harvest Property Advisory Services We provide specialist advice and help source commercial properties for clients Lot Sizes 1m to 15m
The Case for Property Investments Property is a core long term investment Can provide income to smooth returns in volatile times Tax efficiencies in pension no income tax on rental income; no CGT on sale Property is an important component in all investment portfolios
The information contained herein is based on Harvest Financial Services Limited's understanding of current Revenue practice as at March 2017 and may change in the future. The material is not intended to provide advice and is provided for general information purposes only. ****Warnings: Investment in property involves special risks that could lead to a loss of all or a substantial portion of your investment. If you invest in this QIAIF you may lose some or all of the money you invest. If you invest in this QIAIF you will have restricted access to your money as the minimum holding in the QIAIF at all times is 100,000 and as redemption of units is restricted to 4 times a year. The projected figure is an estimate only and is not a reliable guide to the future annual payment from this QIAIF. The income you get from this QIAIF may go down as well as up and will fluctuate in accordance with market conditions and taxation arrangements. Warnings: Past performance is not a reliable guide to future performance. This QIAIF may be affected by changes in currency exchange rates. Changes in exchange rates may have an adverse effect on the value price or income of the QIAIF. The value of the QIAIF may be subject to sudden and large falls in value.
*Harvest Financial Services Limited is regulated by the Central Bank of Ireland **Please note that the provision of this product or service does not require licensing, authorisation, or registration with the Central Bank of Ireland and, as a result, it is not covered by the Central Bank's requirements designed to protect consumers or by a statutory compensation scheme.
Property Market Trends Past, Present and Projections 29 th March 2017 Prepared by Marian Finnegan, Chief Economist
Economic and Political Backdrop
ECONOMY AN OVERVIEW % Change 2011 2012 2013 2014 2015 2016 2017f 2018f Real GNP -4.0% -0.4% 4.7% 9.2% 18.7% 9.0% 3.3% 3.2% Real GDP 0.0% -1.1% 1.1% 8.5% 26.3% 5.2% 3.5% 3.4% Exports 2.9% 2.4% 3.1% 14.4% 34.4% 2.4% 4.5% 4.8% Investment 3.4% 11.7% -5.4% 18.2% 32.7% 45.5% 6.0% 4.7% Consumption -1.0% -1.0% -0.8% 1.7% 4.5% 3.0% 2.9% 2.2% Unemployment Rate 14.7% 14.7% 13.1% 11.3% 9.5% 7.1% 7.7%* 7.3%* Consumer Prices (HICP) 1.5% 1.7% 0.3% -0.3% 0.0% -0.1% 1.3% 1.8% * Revised Department of Finance Labour Market forecasts for 2017/18 not yet released Source: Department of Finance/CSO 24
CENTRAL BANK LOAN TO VALUE (LTV) FOR PRINCIPAL DWELLING HOUSES (PDH) PDH mortgages for non-first time buyers are subject to a limit of 80 per cent LTV. For first time buyers of properties a maximum LTV of 90 per cent will apply. These LTV limits should not be exceeded by more than 20 per cent of the euro value of all housing loans for second and subsequent PDH purposes, and not be exceeded by more than 5 per cent of the euro value of all housing loans for first time buyers, during an annual period. LOAN TO VALUE (LTV) FOR BUY TO LET MORTGAGES (BTLS) BTL mortgages are subject to a limit of 70 per cent LTV. This limit can only be exceeded by no more than 10 per cent of the euro value of all housing loans for non PDH purposes during an annual period. LOAN TO INCOME (LTI) FOR PDH MORTGAGES PDH mortgage loans are subject to a limit of 3.5 times loan to gross income. This limit should not be exceeded by more than 20 per cent of the euro value of all housing loans for PDH purposes during an annual period. Source: Department of Finance/CSO 25
BUDGET 2017 PROPERTY MEASURES THE HELP-TO-BUY SCHEME APPLIES TO NEW HOMES A tax rebate of up to 20,000 or 5% of the value of the house to first time buyers of new homes. WHO QUALIFIES? Only first time buyers of a new home from July 19 2016 to 2019. VALUE 250,000 300,000 400,000 REBATE 12,500 15,000 20,000 OTHER MEASURES Home Renovation Scheme Extended to end 2018 Mortgage Interest Relief Increasing from 75% to 80% in 2017 Living City initiative scope has been expanded Source: Sherry FitzGerald Research 26
RESIDENTIAL MARKET
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 1014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 VOLUME OF SALES 2011 Q4 2016 44,700 sales in Ireland* 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - *Excludes multi-family/block sales Source: PPR/Sherry FitzGerald Research 28
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 VOLUME OF SALES 2015 & 2016 14,122 sales in Dublin up 5% on the previous year Limerick Galway Cork Dublin All Ireland -4% -10% -1% +5% 0% Dwelling units 2015 2016 29 Source: PPR/Sherry FitzGerald Research
Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Units MORTGAGE DRAWDOWNS* 2007 2016 17,295 mortgages with a value of 3.4 billion drawn down YTD Cash buyers account for 47% of market 25,000 20,000 15,000 10,000 5,000 0 *Excludes top-ups and re-mortgages Source: BPFI/Sherry FitzGerald Research 30
PROFILE OF PURCHASERS 2016 Ireland Dublin Owner Occupation 71% 78% Investment 20% 16% Additional Residence 8% 6% Development 1% 1% Source: Sherry FitzGerald Research 31
FUTURE DEMANDS DEMOGRAPHIC PROJECTIONS Year Population Ireland Population Dublin 2016 4.76 million 1.35 million 2021 4.88 million 1.38 million 2026 5.04 million 1.43 million Source: CSO/Sherry FitzGerald Research 32
FUTURE DEMANDS DEMOGRAPHIC PROJECTIONS Year Housing Demand Ireland Housing Demand Dublin 2016-21 36,950 10,400 2021-26 34,400 10,300 Average PA 35,700 10,350 Source: CSO/Sherry FitzGerald Research 33
Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 Units HOUSE BUILDING ACTIVITY 2008 TO 2016 Completions up by 18% Registrations up by 31% Y-O-Y at the end of December 2016 6,000 5,000 4,000 New building control regulations 1st March 2014 3,000 2,000 1,000 0 Commencements Registrations Completions Source: DoHPCLG 34
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HOUSING COMPLETIONS 1973 2016 14,932 units completed in 2016 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: DoHPCLG 35
2,891 4,234 722 817 459 479 1,432 1,817 HOUSING COMPLETIONS REGIONAL CENTRES 2015 2016 Completions up by 46% in Dublin Y-O-Y Dublin Cork Galway Limerick +46% +27% +13% +4% January December 2015 January December 2016 Source: DoHPCLG 36
VENDOR ANALYSIS 2016 IRELAND 32% of Vendors Selling Investment 32% Selling Investment 13% Executor Sale 11% Relocating in Ireland 11% Larger House 11% Bank Repossession 10% Smaller House 12% Other Source: Sherry FitzGerald Research 37
PRIVATE STOCK ADVERTISED FOR SALE JANUARY 2017 22,100 units advertised nationwide of which 2,800 are in Dublin Source: Sherry FitzGerald Research 38
Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Base Year = Q3 2007 THE RTB RENT INDEX NATIONAL Annual rate of rental growth 8.6% in Q3 2016 110 100 90 80 70 National National House National Apt Source: RTB 39
Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Index Base Year = Q4 2001 ALL IRELAND BAROMETER* SECOND HAND HOUSE PRICES House price growth 1.9% in Q1 2017 compared to 1.3% in Q1 2016 250 200 150 TROUGH TO END Q4 2016 +41.0% 100 50 0 PEAK TO TROUGH -56.6% *Preliminary data Source: Sherry FitzGerald Research 40
Q1 2000 Q3 2000 Q1 2001 Q3 2001 Q1 2002 Q3 2002 Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Index Base Year Q4 1995 DUBLIN BAROMETER SECOND HAND HOUSE PRICES House price growth 1.8% in Q1 2017 compared to 0.7% in Q1 2016 800 700 600 500 400 300 200 100 0 PEAK TO TROUGH -60.0% TROUGH TO END 2016 +48.3.0% Source: Sherry FitzGerald Research 41
SECOND-HAND HOUSE PRICES Q4 2016 VALUES OFF PEAK % Galway -39.7% Dublin -40.8% Limerick -39.7% Cork -36.8% Source: Sherry FitzGerald Research 42
Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 Q1 2021 Q3 2021 DUBLIN CAPITAL VALUES 2005-2021 Average annual capital value growth 2016 2021: 6.6% 800 700 600 500 400 300 200 100 0 Source: Sherry FitzGerald Research 43
Commercial Market Investment & Occupier Trends
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Billions INVESTMENT MARKET TURNOVER BN*: 1989 2016 4.46bn invested in Irish commercial property in 2016, an annual increase of 21% 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Ireland Investment Spend LR Annual Average *Deals greater than 1m, excludes loan sales, trading assets and auction sales. 45
TOP INVESTMENT TRANSACTIONS - IRELAND 2016 Asset Price ( ) Sector Vendor Purchaser Blanchardstown Town Centre 950m Retail Green Property Blackstone Liffey Valley Shopping Centre 630m Retail Hines, HAIL & Grosvenor Group BVK One Spencer Dock 240m Office EY International Fund Whitewater Shopping Centre 180m Retail NAMA/Ballymore DEKA The Oval, Shelbourne Road, Dublin 4 140m Mixed Use Private Irish Patrizia Source: Cushman & Wakefield Research 46
INVESTMENT TRANSACTIONS SECTOR BREAKDOWN 2016 2.26bn was invested in Retail, followed by Offices with 1.3bn invested. Retail up significantly from 2015, when 1bn was invested. Total spend in offices declined in the year, however 2015 greatly boosted by Project Molly. Mixed use also recorded a decline in 2016, as portfolio sales were less dominant. Residential and industrial sectors both saw an increase in total transactions during the year. Sector Breakdown 2016 51% Retail 30% Office 10% Mixed Use 6% Residential 2% Industrial 1% Other Source: Cushman & Wakefield Research 47
INVESTMENT TRANSACTIONS SECTOR BREAKDOWN 2015 VERSUS 2016 2015 2016 46% Office 27% Retail 19% Mixed Use 4% Residential 2% Industrial 2% Other 51% Retail 30% Office 10% Mixed Use 6% Residential 2% Industrial 1% Other Source: Cushman & Wakefield Research 48
INVESTMENT TRANSACTIONS LOCATION BREAKDOWN 2016 The share of total spend outside of Dublin in 2016 was 14% 86% Dublin 14% Outside of Dublin Source: Cushman & Wakefield Research 49
INVESTMENT TRANSACTIONS LOT SIZE 2016 48% 100m+ (5) 16% 50 100m (11) 16% 20 50m (23) 10% 10 20m (30) 10% 1 10m (149) Source: Cushman & Wakefield Research 50
INVESTMENT TRANSACTIONS SOURCE OF CAPITAL 2016 Domestic Versus Foreign Investment Origin of Foreign Investment 67% Foreign 25% Domestic 7% Unknown 1% Joint Venture 43% Europe 37% US 8% Middle East 7% UK 5% Other Source: Cushman & Wakefield Research 51
Irish Office Market
Irish Office Market Q4 2016 1 Grade A Building > 5,000 sq m Market Stock: Take Up 2016: 304,000 sq m 5,750 sq m Market Stock: Take Up 2016: 3.37 million sq m 261,700 sq m Availability: 24,400 sq m Vacancy Rate: 8.0% Under Construction: 0 sq m Completions 2016: 2,250 sq m GALWAY DUBLIN Availability: 412,150 sq m Vacancy Rate: 12.2% Under Construction: 373,300 sq m Completions 2016: 31,100 sq m Market Stock: Take Up 2016: 337,600 sq m 10.450 sq m LIMERICK Market Stock: Take Up 2016: 564,850 sq m 21,500 sq m Availability: 66,150 sq m Vacancy Rate: 17.6% Under Construction: 28,450 sq m Completions 2016: 7,850 sq m CORK Availability: 65,000 sq m Vacancy Rate: 11.5% Under Construction: 5,000 sq m Completions 2016: 15,850 sq m Source: Cushman & Wakefield Research 53
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 DUBLIN OFFICE MARKET TAKE UP & NET TAKE UP (SQ M) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 - (50,000) (100,000) 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Take Up Net Take Up Vacancy Rate Source: Cushman & Wakefield Research 54
DUBLIN TAKE UP BY TENANT TYPE 2016 33% IT/Comm 18% Finance 13% Professional 9% Unknown 7% State 6% Retail 5% Pharmaceutical/Health 5% Other 2% Training/Development 2% Recruitment Source: Cushman & Wakefield Research 55
DUBLIN OFFICE MARKET 2016 Office Market Dublin Central Business District Market Stock 3.37 million sq m 1.73 million sq m Take Up 2016 261,700 sq m 134,950 sq m Availability 412,150 sq m (Net Avail 274,850 sq m) 135,650 sq m (Net Avail 68,100 sq m) Vacancy Rate 12.2% (Net VR 8.2%) 7.9% (Net VR 3.9%) Under Construction 373,300 sq m 284,000 sq m Pre-let 29% 26% Reserved 4% 4% Source: Cushman & Wakefield Research 56
57
TOTAL CBD OFFICE TAKE UP BY GRADE 2016 Grade sq m % A1 46,700 35 A2 36,500 27 A3 12,500 9 Sub Total 95,700 71 B1 18,250 13 B2 21,000 16 Sub Total 39,250 29 Total 134,950 100 Source: Cushman & Wakefield Research 58
GRADE A OFFICE NET AVAILABILITY in CBD BY SIZE* Q4 2016 All Stock No. of Offices Sum of Net Availability % < 1,000 Sq m 27 10,550 24 > 1,000, < 5,000 Sq m 9 20,650 47 > 5,000, < 10,000 Sq m 0 - - > 10,000 Sq m 1 12,400 29 Total 37 43,600 100% Source: Cushman & Wakefield Research 59
DUBLIN CBD GRADE A TAKE UP & AVAILABILITY (SQ M) 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000-2011 2012 2013 2014 2015 2016 Grade A Net Availability Grade A Take Up Average Grade A Take Up Source: Cushman & Wakefield Research 60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f DUBLIN OFFICE DEVELOPMENT 1990 2019 300,000 250,000 200,000 150,000 100,000 50,000 0 Completions Under Construction - Let Under Construction - Available LR Average Take Up Source: Cushman & Wakefield Research 61
CBD DEVELOPMENT PIPELINE 2017 2021 200,000 180,000 160,000 140,000 120,000 100,000 80,000 [VALUE] sq m P.A. [VALUE] sq m P.A. 60,000 40,000 20,000-2017 2018 2019 2020 2021 Under Construction Let Under Construction Available Pipeline Development Average CBD Take Up Forecast CBD Take Up Source: Cushman & Wakefield Research 62
DUBLIN OFFICE MARKET FUTURE SUPPLY THERE ARE OVER 130 NEW OFFICE BUILDINGS CURRENTLY BEING PLANNED FOR DUBLIN, TOTALLING OVER 1.1 MILLION SQ M. SEPARATELY, 39 new office developments are currently under construction in the capital 13 of which are prelet. A further 62 developments have received planning approval but are not yet on site, while 35 are in the planning stages. Set out across is a sample of the office developments currently being planned and developed in Dublin s CBD. Many of the office developers are also key New Homes & Multi-Family clients such as Park Developments, Ardstone, Ballymore and TIO/Oaktree. Separately, there are a number of major retail and mixed use developments planned including phase 2 of Dundrum Town Centre (appointed sole agents), the Blanchardstown Centre extension and Cherrywood office, retail and residential development (appointed joint agents). 63
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f per sq m % PRIME OFFICE RENTS AND YIELDS DUBLIN OFFICE MARKET 800 700 600 500 400 300 200 100 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 0.0 Office Prime Rent Office Prime Yield Source: Cushman & Wakefield Research 64
EUROPEAN CITY OFFICE RENTS 2016 1,600 1,513 1,400 1,200 1,000 800 864 790 600 619 576 400 200 444 370 290 250 194 0 London (WE) London (City) Paris Dublin Luxembourg City Frankfurt Amsterdam Cork Galway Limerick 65
THANK YOU.ANY QUESTIONS? MARIAN FINNEGAN Chief Economist marian.finnegan@sherryfitz.ie JONATHAN HILLYER Director, Investments Jonathan.hillyer@cushwake.ie Marian Finnegan
CAVEATS This report should not be relied upon as a basis for entering transactions without 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 Cushman & Wakefield / 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 Cushman & Wakefield / 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 Cushman & Wakefield / Sherry FitzGerald. 67 67
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