Savills Ireland, “Investment Report 2015”

Savills World Research
Ireland Investment
INVESTMENT
REPORT 2015
Investment Report
2015
Introduction
Investment Transactions and Turnover
5,000
350
Turnover( € m)
4,500
300
No. of deals
4,000
(€m)
3,000
200
2,500
150
2,000
1,500
No. of Deals
250
3,500
100
1,000
50
500
0
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
"2014 saw an
unprecedented
level of commercial
property
investment in
Ireland. Overall,
nearly €4.5bn of
income-producing
property assets
were directly traded
during the year."
GRAPH 1
Source: Savills Research
Commercial property investment spending more then doubled in 2014
and the total turnover of €4.5 billion represents a 40% increase on the
previous record for the Irish market which was set in 2006. In terms of
transactions numbers, almost 300 deals were done in 2014 – nearly
three times the number completed in 2006.
This dramatic upsurge in activity reflects a combination of factors that
have led to very strong demand for Irish investment property and, at
the same time, very liquid supply arising from the financial institutions’
deleveraging programmes.
Focusing firstly on demand, the global appetite for risk bearing assets
has been driven by falling bond yields; as the risk free rate of return
has declined investors have had to move into higher yielding assets including commercial property - in search of better returns. With the
ECB commencing its long-awaited quantitative easing (QE) programme
on 9th March it is clear that bond rates are set to remain very low for
the foreseeable future. Therefore there will continue to be a weight of
money with ambitions to buy into real estate investments.
A significant amount of this capital has specifically targeted Ireland. In
part this reflects the value that has been available in the market after the
economic crisis. However, it also reflects the fact that investors have
responded to the Irish macro-economic recovery story. Ireland currently
has the fastest growing economy in the EU with GDP expanding by
4.8% in 2014. Total employment has rebounded by 6.2% since the
2012 trough and, as the labour market has improved, so have the
public finances. This enabled Ireland to exit its bailout programme in
December 2013 and, with the fiscal adjustment programme now well
in hand, the Government was able to introduce its first expansionary
budget for seven years in October 2014.
Reflecting the improved macro-economic situation occupational
markets have picked up strongly and investors have been attracted by
a positive rental growth story for both prime offices and retail. Office
take-up across Dublin reached over 240,000 sq m in 2014 - its highest
level since 2007. With expansions and new entrants accounting for
an increasing proportion of lettings, vacancy rates are falling sharply
and this is driving strong rental growth. The retail recovery has taken
longer. However, a sustained improvement in the consumer economy
is now feeding through to stronger demand for shopping space. With
no significant commercial development having taken place over the last
five years, and with relatively little scheduled for completion before 2017,
this is driving strong rental growth in prime locations, with expectations
of further and more widespread growth to come.
Just as these factors have led to unprecedented demand for Irish real
estate investments, the supply of available product has also increased.
Deleveraging activity, led by NAMA and the withdrawing foreign banks,
has resulted in large quantities of commercial property being released
to the market. These properties have been offered both as direct assets
and packaged portfolios. Looking ahead, just as we see investment
demand continuing to be underpinned by a growing economy and low
bond rates, we also see the supply of investment product remaining
elevated in the short term. There is still substantial deleveraging to be
done. Moreover, re-trades of properties bought earlier in the cycle,
along with portfolio and loan sale break-ups will ensure a continued
pipeline of supply for the remainder of 2015 and beyond.
savills.ie/research
02
2015
Investment Report
Investment by Lot Size
One of the most striking features of the current investment cycle is the
appetite for very large deals. On average, over the last three years,
57% of all spending on Irish commercial property investment has been
transacted in deals of over €50m.
In the early stages of the recovery the most active buyers were private
equity players who naturally favour large deals. On one hand, because
they have shorter time horizons, large lot sizes allow these players to
build up their positions more quickly. Similarly, because they trade more
often the bigger lots help to dilute fixed transactions costs. Moreover,
in purely practical terms, the cost of setting up an offshore team often
requires these players to buy in scale. In the latter half of 2013 private
equity was involved in a number of mega-deals including the purchase
of the Opera (€306m) and Ulysses (€152m) portfolios. This continued
into 2014 with US private equity investors HAIL/Hines buying Liffey
Valley Shopping Centre (€250m) and Vӓrde Partners buying the Acorn
Portfolio (€171.5m). However, with yields hardening we are likely to see
a gradual withdrawal of private equity capital over the medium term, and
a critical question is whether the depth of demand exists to maintain
momentum in the market.
GRAPH 3
Investment Spending by Lot Size - 2014
1%
6%
6%
7%1%
≤1m
6%
6%
62%
18%
7%
1m-5m
≤1m
5m-10m
1m-5m
62%
18%
10m-20m
5m-10m
20m-50m
10m-20m
20m-50m
>50m
>50m
Source: Savills Research
So far the signs look good. In contrast to the preceding years, core
institutional investors did three of the five biggest deals in 2014. Indeed,
these players accounted for 54% of all spending in the €50m plus
category last year, demonstrating that they also have the ability to digest
very large transactions.
As shown in Graph 3, while 80% of the capital invested in 2014 was
deployed in deals of over €20m, the majority of transactions involved
much smaller investments. In fact, 68% of all investment transactions
last year were of lot sizes of €5m or less. Within this price range, investors
were most likely to buy mixed use properties (25%), offices (24%) and
neighbourhood retail units (14%). Smaller multi-family investments
accounted for 7% of transactions at the sub-€5m price point.
GRAPH 2
Percentage of Investment Spend in Deals
over €50m (%)
70
60
50
40
30
20
10
0
2012
2013
2014
Source: Savills Research
savills.ie/research
03
Investment Report
2015
Investment by Sector
Office Investment
Graph 4 illustrates the sectoral breakdown of commercial property
investment in Ireland over the last three years. Apart from the dramatic
increase in overall turnover three additional points are evident. Firstly,
offices have been a key target for investors and this continues to be the
case. This notwithstanding, a second point is that retail is becoming an
increasingly important part of the investment mix. Finally multi-family
residential, which emerged as a new investment sub-sector in 2012,
has now become a mainstream part of the investment market. Each of
these sectors is examined in detail below.
In the early stages of the market recovery much of the investor focus
was on offices. This is not surprising as prime office buildings with a
quality covenant are generally considered a low risk investment. As
such they typically lead the way in a recovery cycle. Although offices
are no longer the fastest growing sector of the investment market, total
turnover increased by 25% in 2014, and more than €1.6bn of office
property changed hands. This continuing flow of capital reflects the
underlying strength of the occupational market. While Ireland sustained
a 16% employment shakeout during the economic crisis, office based
employment actually increased. And, in the overall labour market
recovery that has followed, 29% of the newly created jobs can broadly
be described as office based. This has driven strong net absorption
which, in the face of fixed supply, has resulted in rapid rental growth.
GRAPH 4
Investment Turnover by Sector (€m)
4,500
4,500
4,000
4,000
As shown in the map, the vast majority of office investments over the
last three years have been located in Dublin. This is particularly true of
the transactions that occurred in 2012. However, as yields have moved
in, investors have increasingly been willing to look at locations outside
the capital. Four office deals, at a combined value of approximately
€46m, were done in the major regional cities of Cork and Galway during
2013. This continued in 2014 with seven office buildings sold in Cork,
along with further properties in Galway, Limerick, Kildare, Laois, Louth
and Westmeath.
3,500
3,500
3,000
3,000
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
2014
Other
Other
Retail
2012
2012
Hotel
Hotel
Mixed
Mixed
2013
2013
Industrial
Industrial
Multi-Family
Multi-Family
2014
2014
Retail
Retail
Offices
Offices
Offices
Within Dublin, 84 office investments changed hands in 2014. These
lots comprised almost 400,000 sq m of space, 42% of which was in
the core Dublin 2 location. A further 14% of space was in Dublin 1 - a
city centre location just to the north of the River Liffey. This reflects
the fact that syndicated investors who were originally attracted into the
International Financial Services Centre (IFSC) by capital allowances are
now divesting of properties which have reached the end of their tax life.
The bulk of the remaining space was in suburban locations.
GRAPH 5
Dublin Office Investments by Postcode
(Sq M) - 2014
Source: Savills Research
FIGURE 1
Office Investment Transactions by
Location - 2014
55,698
112,181
D1
D2
55,698
D3
D4
D7
112,181
D8
166,427
10,673
10,673
D2
D3
Suburban
D4
D7
22,693
8,348
D1
166,427
D8
Suburban
Source: Savills Research
2012
2013
2014
Source: Savills Research
22,693
The average size of the office buildings that were sold in 2014 was 4,759
8,348greater than the average size of all modern office
sq m – somewhat
buildings located in Dublin (2,987 sq m). However, the size of traded
units varied by postcode, with the buildings sold in Dublin 1 & 2 being
significantly larger – see Table 1. Grade A buildings accounted for 35%
of all the tenanted space that changed hands during the year, despite
the fact that only 18% of Dublin’s office stock is currently classified as
Grade A.
savills.ie/research
04
2015
Investment Report
Office Investment
GRAPH 6
Dublin Office Investments by Building Grade
(Sq M) - 2014
86,950
GRAPH 8
A
140,974
Prime Dublin Office Rents Forecast (€/ Sq m)
B
86,950
800
C
140,974
171,799
Source: Savills Research
demand. Inevitably, therefore, vacancy rates will fall further and rents
will continue to rise rapidly. Compounding on rental growth of 36% in
2014, our econometric models indicate that rents for the best offices in
Dublin will reach €760 per sq m in the current market cycle. At the same
time, with bond rates set to remain low, we believe that there is scope
for further yield compression which will combine with rental growth to
drive capital values and overall returns.
700
A
600
500
B
400
C
300
200
100
2017 (f)
2016 (f)
2015 (f)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
171,799
It is interesting to examine the changing pattern of Grade A transactions
by buyer type over time. In the early stages of the recovery private
equity buyers were by far the most active players and were able to target
Grade A properties at discounted prices. However, as the recovery has
gained strength hardening yields have led PE buyers to increasingly look
at older buildings and value-add opportunities which meet with their IRR
requirements. At the same time the institutions, and the REITs that have
come into the market since 2013, have become more active and, with
longer time horizons and lower funding costs, they have been able to
out-compete private equity for core assets.
Source: Savills Research
TABLE 1
Summary of Dublin Office Investment - 2014*
Deals
Total Sq M
Average
Sq M
Grade
A (%)
Grade
B (%)
Grade
C (%)
1
10
55,698
5,570
19
76
5
2
34
166,427
4,895
39
37
24
4
6
22,693
3,782
48
3
49
100
Total Dublin
84
399,724
4,759
35
43
22
90
100
Source: Savills Research *Includes offices traded directly and as part of portfolios
GRAPH 7
Investment in Grade A Dublin Offices by
Buyer Type - 2014 (%)
90
80
Postcode
TABLE 2
Top 10 Office Investment Deals - 2014
80
70
70
60
Quarter
Sold
Price €
Postcode
The Platinum Collection
Q1
165,000,000
D2
The Atrium Building, Sandyford
Q4
100,000,000
D18
Guild House & Commerzbank
House, IFSC
Q3
90,750,000
D1
Montague House & Hardwicke
House
Q2
60,000,000
D2
1 Harbourmaster Place, IFSC
Q4
50,000,000
D1
Hanover Reach, Grand Canal
Dock
Q2
50,000,000
D2
New Century House, IFSC
Q1
47,000,000
D1
29-31 Adelaide Road
Q2
45,000,000
D2
1 Warrington Place
Q2
42,000,000
D2
5 George’s Dock, IFSC
Q4
39,000,000*
D1
60
Property
50
40
50
40
30
30
20
20
10
10
0
0
2012
2012
Institutional / REIT
Institutional / REIT
2013
2013
Other
Other
2014
2014
Private Equity
Private Equity
Source: Savills Research
Looking ahead we expect investors’ appetite for Dublin offices to
remain strong. Occupier demand will be underpinned by forecast GDP
growth of around 3.7% per annum out to 2018. However, with little if
any net additional office space in the pipeline over the next two years,
and with just over 100,000 sq m pencilled in for 2016, the supply
of new business space in Dublin will not be sufficient to meet this
Source: Savills Research
*Approximate value Note: Excludes office assets in mixed portfolios
savills.ie/research
05
Investment Report
2015
Retail Investment
FIGURE 2
Retail Transactions by Location - 2014
assets were sold as a package to US private equity investor Marathon
Asset Management.
Despite the upsurge in overall retail investment, there have been
relatively few sales of prime high street retail assets. Overall, high street
units accounted for €137m of turnover in 2014 – just 13% of the total
spending on retail property, and just 3.1% of total investment turnover.
This reflects the fact that many of the best high street assets are
institutionally owned and have not been available for sale. To illustrate
the illiquidity that exists in this part of the market, only twelve properties
in Dublin’s prime retail thoroughfares – Grafton St., Henry St., and Mary
St. – have been traded since the beginning of the market recovery in
2012.
Retail NS
Retail HS
Retail SC
Retail R/P
Source: Savills Research
Retail investment has been slower to get going. However the touch
paper was lit last year with transactions jumping from €144m in 2013 to
over €1bn in 2014. There are several reasons for this. Firstly it reflects
the fact that the retail recovery has lagged some way behind the office
market recovery - while office rents have been rising since early 2013,
retail rents only began to show positive growth in the second half of
2014. However, with 114,000 new jobs since 2012, and with consumer
sentiment at a nine year high, the retail recovery is now gaining traction
and inevitably this is attracting investors’ attention. A second reason
for the upsurge in retail investment relates to the mix of opportunities
that have been available in the market. With offices leading the way
during 2012 and 2013, many of the best assets were traded earlier in the
cycle. These properties are now finding their way back to the market
through re-trades and loan book break-ups. However, this has taken
time and, in the interim, investors have increasingly turned to retail. A
final reason for the resurgence in retail investment is that concentrated
activity in offices during the early phase of the recovery saw stronger
yield compression in offices than retail. This has naturally channelled
buyers into new opportunities.
In order to capitalise on the recovering consumer economy several
large shopping centres were brought to the market in 2014. The
biggest retail deal of the year was Liffey Valley Shopping Centre which
was sold in Q1 2014 to private equity investors HAIL/Hines for €250m.
The Acorn Portfolio, a package of regional shopping centres located in
Cork, Clonmel and Balbriggan, north County Dublin, was sold to a US
private equity investor for €171.5m. Meanwhile the Spectrum Portfolio,
which contained five suburban and regional shopping centres, sold in
Q4 2014 for €124.75m (retail element only).
Recent research by economists at Savills and the ESRI shows that jobs
growth is the dominant factor in determining retail rents in Ireland. Given
the strong recovery in the Irish labour market it is therefore not surprising
that the IPD retail rents index is rising once again. Undoubtedly the
strength of this recovery remains highly variable by location and retail
sub-sector. However, with approximately 50,000 net additional jobs
expected this year, and a further 55,000 forecast for 2016, we believe
that further and more widespread growth in retail rents is likely going
forward. Again, this should underpin demand for retail investments
and we expect large scale trading in this sector through the remainder
of 2015 and beyond.
GRAPH 9
Retail Investments by Sub-Sector (%)
70
60
70
60
50
50
40
40
30
30
20
20
10
10
0
0
2012
2012
Retail- H/S
- H/S
Retail
2013
2013
2014
2014
Retail
- N/S RetailRetail
Retail
- N/S
- S/C - S/C
Retail - Retail
R/P - R/P
Source: Savills Research
There was also significant activity in the retail parks sub-sector with
The Parks Portfolio trading in late 2014. The most prime asset within
this portfolio was The Park in Carrickmines – arguably Ireland’s premier
retail park. Interestingly, this was broken out and sold to IPUT, an Irish
institutional investor, for €95m. In contrast the higher-yielding regional
savills.ie/research
savills.ie/research
06
06
Investment Report
2015
Multi-Family Investment
€918.5m worth of multi-family residential properties have been
bought by investors since the beginning of 2012. These investments
incorporate some 4,521 dwelling units, the vast majority of which are
located in Dublin. This means that over 13% of all residential sales in
Dublin over the last three years have been to multi-family investors.
At the outset of this buying cycle, and as a result of the housing market
crash, a number of newly or partially completed developments were
available to buy. This allowed the early movers to secure full or near-full
ownership of entire schemes. Clearly, this gives them greater control
over the tone of rents within a scheme. However, as developments
have been bought up, fewer entire lots have come onto the market and
investors are increasingly having to accept fragmented ownership. As
shown below, in 2012 all of the multi-family assets that traded were
bought on a full-ownership basis. This figure declined to 61% in 2013
and fell further to 53% in 2014.
GRAPH 10
Multi-Family Assets Bought With Full
Ownership by Year (%)
Looking ahead, there are a number of developments to watch for in 2015.
With residential prices rising and new mortgage lending restrictions
now in place, it has become harder for first time buyers to get onto the
housing ladder. As such, there would appear to be a stable platform of
demand for rented accommodation, particularly in Dublin. This should
support rents and yields, and will provide income opportunities for
investors. However, as prices rise the argument for breaking-up multifamily investments and selling them off unit-by-unit becomes stronger.
Indeed, these schemes were originally designed for owner-occupation
and, particularly where investors only have fragmented ownership, they
may be alive to this opportunity. In saying this, a significant amount
of core institutional money has gone into the multi-family sector and,
where investors have full ownership and have been able to drive rents
by creating tenant amenities, a longer hold is likely. Indeed, we may
see some of the longer term investors develop new purpose-built multifamily blocks on a design-build-operate basis; both IRES REIT and
Kennedy Wilson have sites available for residential development and
have expressed the intention of building these out.
GRAPH 11
Sub-€5m Multi-Family Deals by
Quarter (%) - 2014
100
90
80
10
70
8
60
10
50
9
40
30
73
8
9
Q1
Q1
Q2
Q2
Q3
Q3
Q4
73
20
10
0
2012
2013
2014
Source: Savills Research
Total multi-family turnover in 2014 was €621m, and two distinct buyer
types were active within the market. At the upper end IRES, a listed
residential REIT, bought the three largest lots that were offered for sale
during the year. These were Project Orange, a portfolio of 761 residential
units across four schemes (€211.25m), The Rockbrook Estate, a South
Dublin scheme of 270 apartments (€88.9m) and the Marker Residences,
a prime 84 unit scheme located in Grand Canal Dock in Dublin’s Central
Business District (€50.1m). Private equity also remained active with
Marathon Asset Management, Kennedy Wilson and Oaktree Capital
all doing deals in the €5m-€20m size category. However, with the
institutions dominating the bigger plays, PE accounted for a smaller
proportion of multi-family turnover in 2014 than in previous years.
At the other extreme private investors dominated the market for sub€5m lots and accounted for almost three quarters of all deals in this price
range. Interestingly, 73% of the spending at this price point occurred
in Q4, indicating a rush of smaller private investors into the market to
avail of the Capital Gains Tax incentives which were withdrawn last
December.
Q4
Source: Savills Research
TABLE 4
Top 10 Multi-Family Deals – 2014
Property
Sold
Price (€)
Units
Rockbrook Estate, Sandyford
Q4
88,900,000
270
The Marker Residences, Grand Canal Square
Q2
50,100,000
84
Richmond Gardens, Fairview
Q4
20,000,000
91
Liffey Trust Building, IFSC
Q4
14,850,000
81
Alto Vetro, Grand Canal Docks
Q4
11,000,000
26
Shieling Square, Raheny
Q2
8,000,000
75
Alexander Court, 25 Upper Pembroke St, D2
Q4
6,500,000
23
Oxmantown Green, D7
Q1
6,000,000
25
Sartini Court, D7
Q4
4,500,000
27
128 Lower George’s St., Dún Laoghaire
Q1
2,400,000
12
Source: Savills Research Note: Excludes multi-family assets in mixed portfolios. The Orange
Collection, which mainly contained multi-family residential, sold for €211.25 in Q3 2014.
savills.ie/research
07
Investment Report
2015
Investment by Buyer Type
Ireland’s economic crisis created a pool of distressed assets that
investors were able to access at rock-bottom prices in 2012 and 2013.
As shown in Graph 12, many of these early opportunities were seized
by private equity funds whose business model is to invest in higher risk,
high return assets with an intended 3-5 year hold before profit-taking
and recycling. Initially, and given the value that was available in the Irish
market after the economic crash, this PE money was mainly invested in
prime Dublin offices. However, as office yields have hardened some of
the private equity money has moved into higher yielding asset classes
(particularly retail) and, inevitably, some has moved on to other markets.
As a result, private equity’s share of total investment turnover has fallen
from 53% in 2012 to 36% in 2014.
GRAPH 12
In contrast core institutional investors came back into the market in
2013 and 2014. In part this reflects a structural change in the market
with the Finance Act (2013) allowing the formation of REITs, and the
three Irish REITs have been aggressive buyers over the last 12 months.
More fundamentally, however, it represents the recovery in occupational
markets which has allowed the core institutions to bid competitively for
prime assets on a buy-and-hold strategy. As outlined above, there has
been a debate about whether sufficient core demand exists to sustain
the Irish market when the private equity capital eventually moves on.
However, in addition to the Irish REITs and funds, we have seen foreign
institutions such as Standard Life (UK), Union Invest and Real I.S.
(Germany) and Hines Global REIT (US) all investing in Irish commercial
property assets in recent months, suggesting an ongoing depth of core
institutional demand.
20
20
Investment Turnover by Buyer Type (%)
50
50
40
40
30
30
10
10
0
0
2012
2012
2013
2013
PrivateSyndicate
Syndicate
Private
Private
Private Equity
Equity
Confidential
Unkown
Confidential // Unkown
2014
2014
PrivateIndividual
Individual
Private
Other
Other
Institutional/ /REIT
REIT
Institutional
Source: Savills Research
Investment by Seller Type
One of the defining characteristics of the recent investment market
resurgence is the liquidity of supply arising from bank deleveraging. In
this context it is not surprising to see that receivers have been behind
42% of all transactions by value since the beginning of 2012. In saying
that, the proportion of sales originating from receivers fell in 2014. This is
largely due to the pension funds and institutions divesting of buildings in
order to acquire new stock. In this sense we are seeing the resumption
of a normal recycling of space within the market as institutional holders
sell-off their older buildings to make way for more modern stock, thereby
providing opportunities for developers and value-add investors.
GRAPH 13
Investment Turnover by Seller Type (%)
50
40
50
40
30
30
20
20
10
10
0
0
2012
2012
2013
2013
2014
2014
Private
Private Equity
Private
Syndicate
Receiver Private
Private Individual
Private Equity
Syndicate
Receiver
Confidential
Unknown
Other
Prop Co. Prop
/ REIT / REIT
Unknown Institutional
Other
Co.
Institutional
Individual
Confidential
Source: Savills Research
savills.ie/research
savills.ie/research
08
08
Investment
Report
Market
Hotel
Report
2013
2015
OUTLOOK
On 9th March the ECB began its long-awaited quantitative easing
programme. This is scheduled to pump €1.1tn into the Eurozone
financial system by September 2016 and will set the context
for Irish commercial property investment over the next eighteen
months. On one hand, by driving down the value of the Euro it
will support exports which, in turn, will underpin occupational
markets. In addition, with Central Banks across Europe engaging
in wholesale purchases of Government debt, interest rates will be
compressed further. This will force investors up the risk curve in
search of returns and will drive money into real estate. As shown
below, despite significant yield compression over the last three
years, the spread between commercial yields and the risk-free
bond rate remains well above the 20-year average, suggesting
scope for a further squeeze on yields. In practice this will be
realised through competitive bidding which causes prices to run
ahead of rental growth.
With a real scarcity of Grade A office space in Dublin, and very
limited new building on the horizon until 2017 at the earliest,
very strong rental growth will continue in this sector. This will
underpin the demand for office investments. The retail recovery
is a slower-burn, and is more variegated by location. However
rents will continue rising strongly in prime high street locations
and the best shopping centres. At the same time, with the jobs
market recovery bringing renewed prosperity and confidence to
the regions, the better provincial schemes will also see rising rents.
GRAPH 14
Dublin Office Yields vs. German 10 Year
Govt. Bonds (%)
8
7
6
5
4
3
2
1
0
2015 Q1
2014 Q2
2013 Q3
2012 Q4
2012 Q1
2011 Q2
2015Q3
Q1
2010
2014Q4
Q2
2009
2009
2013Q1
Q3
2008
2012Q2
Q4
2011 Q2
2007
2012Q3
Q1
2010 Q3
2006 Q4
2009 Q4
2006 Q1
2009 Q1
2005 Q2
Prime Dublin Office Yield
2004 Q3
2003 Q4
DE Bond
2008Q1
Q2
2003
2007Q2
Q3
2002
2006Q3
Q4
2001
2000
2006Q4
Q1
2000
2005Q1
Q2
2003 Q4
1999
2004Q2
Q3
2003 Q1
1998 Q3
2002 Q2
1997 Q4
1997 Q1
2001 Q3
1996 Q2
1995 Q3
2000 Q1
2000Q4
Q4
1994
1999 Q2
1998 Q3
1997 Q4
1997 Q1
1996 Q2
DE Bond
Prime Dublin Office Yield
Source: Savills Research
In addition to ongoing strong demand we will continue to see an
abundant supply of product in the market. This reflects the fact
that there is still significant deleveraging to be done, particularly of
retail assets. But it also reflects second round trading effects. A
key trend for the year ahead will be re-trades of buildings bought
earlier in the cycle as assets move from the hands of opportunistic
short-term owners into those of their natural longer term holders.
Moreover, an estimated €30bn of loan books were traded in 2014
and, as these are worked through, the assets that collateralise the
debts will eventually come to the market. Finally, we are likely to
see many of the asset portfolios that were bought over the last 18
months broken-up and re-traded as individual investments. All
of this should ensure strong supply to meet the expected level of
demand.
Summarising the short-term outlook, a number of key trends will
dominate the market;
■ Further yield compression and strong rental growth will drive
capital values and total returns.
■
Indeed early estimates indicate that approximately €1bn of
investment property will have been sold in the first quarter of
2015 – an increase of 8% of last year.
■ With QE providing cheap money, debt will play a bigger role.
Lending margins have come in sharply since the beginning of
2015 and this will continue as banks find themselves with large
quantities of cash that they have to put to work.
■ There will be continued re-trades of prime assets as short-term
money seeks to recycle capital.
■ A deepening base of institutional investors will continue to
compete for core assets. As an example, the largest trade in
Q1 2015 was the sale of a prime Dublin office portfolio – Project
Molly – to a US REIT.
■ With the economic recovery now well established, some private
equity will inevitably move out of Ireland. Other short-term
investors will remain in the country, but will seek opportunities
in secondary and regional markets.
■ Arising from this we expect continued strong investment in
regional retail property. We are also likely to see more money
flowing into industrial real estate in 2015.
■ There will be a general swing from wholesale to retail as the big
portfolio sales gradually give way to re-trades and individual
asset deals.
Looking further ahead, the assumption that quantitative easing will
continue after September 2016 is not necessarily assured. The
ECB has committed to buying bonds for as long as is necessary to
restore inflation to close to 2%. However, a range of indicators are
now suggesting that the Euro Area economic recovery is gaining
traction - albeit from a low base. Moreover oil prices, rather than
more widespread deflationary pressures, have played a big part
in the negative headline rates of inflation across Europe. In
this context the monetary authority will be cautious to avoid an
over-stimulus. Therefore our current view is that we may see a
tapering of quantitative easing towards the end of next year. At
the same time, as new building supply comes on-stream from
2017 – particularly in the Dublin office sector – the very rapid rates
of rental growth we are currently seeing will inevitably ease off.
As a result, we believe that investment market activity is likely to
gradually return to a more normalised level from 2017.
savills.ie/research
09
Investment Report
2015
Appendix 1: Key Property Transactions
FIGURE 1
Sapphire Portfolio
Location:
George's Quay and George's Court, Dublin
2 and Westend Retail Park, Blanchardstown,
Dublin 15
Sector:
Office and Retail
Sale Date:
Q2 2014
Sale Price:
Region €375 million
Initial Yield:
Approximately 6.00%
Term Certain:
Approximately 4.8 years (WAULT)
Size:
Portfolio comprised the 23,011 sq m (247,693
sq ft) George’s Quay Blocks A, E & F, the 9,194
sq m (98,968 sq ft) George’s Court and the
28,069 sq m (302,128 sq ft) Westend Retail
Park in Blanchardstown, Dublin 15.
Vendor / Agent:
Cosgrave Property Group / JLL
Purchaser / Advisor:
Green REIT / Unadvised
The portfolio comprised two modern third generation offices located in
Dublin’s CBD and Westend Retail Park, a substantial open use retail park
located in Blanchardstown. The portfolio produced a rent of approximately
€23.7 million per annum from 58 tenants and had a weighted average
unexpired lease term of approximately 4.8 years. The portfolio benefited
from an occupancy rate of approximately 97%.
FIGURE 2
Central Park
Location:
Leopardstown, Dublin 18
Sector:
Office & Multi-family & Future Development
Land
Sale Date:
Q1 2014
Sale Price:
Region €311.5 million
Initial Yield:
5.53%
Term Certain:
Approximately 5.5 years (WAULT)
Size:
Approximately 67,434 sq m (725,879 sq ft)
of commercial space, 272 multi-family units
split over 8 separate buildings in addition to
approximately 7.4 acres of development land.
Vendor / Agent:
PWC as Receiver on behalf of NAMA / Savills
& JLL
Purchaser / Advisor:
Green REIT, Kennedy Wilson & Pimco / CBRE
Central Park comprised a mixed-use development including offices,
multi-family units and ancillary retail totalling approximately 67,434 sq m
(725,879 sq ft) in addition to approximately 7.4 acres of development land.
The overall income was €17.98 million per annum including approximately
€13.87 million of office rent per annum which had a WAULT of 5.46 years.
savills.ie/research
savills.ie/research 010
10
Investment
Report
Market
Hotel
Report
2013
2015
FIGURE 3
Liffey Valley Shopping Centre
Location:
Clondalkin, Dublin 22
Sector:
Retail
Sale Date:
Q1 2014
Sale Price:
€250 million (72.8% stake)
Initial Yield:
6.7%
Term Certain:
Approximately 8 years (WAULT)
Size:
Approximately 46,452 sq m (500,000 sq ft)
Vendor / Agent:
Aviva / DTZ & Savills
Purchaser / Advisor:
HSBC Alternative Investments Limited (HAIL)
& Hines
Liffey Valley is one of Ireland’s leading shopping centres and comprises
approximately 500,000 sq ft of retail accommodation in addition to an
adjoining 17.3 acre development site. The scheme had occupancy levels
in excess of 98% and produced an overall income of approximately €24
million per annum.
FIGURE 4
Redwood Portfolio
Location:
No. 2 Grand Canal Square, South Docklands,
Dublin 2 / The Observatory, Sir John Rogerson’s
Quay, Dublin 2 / One Clarendon Row, Dublin 2
Chatham Court, Dublin 2
Sector:
Office & Retail
Sale Date:
Q3 2014
Sale Price:
€215 million
Initial Yield:
3.77%
Term Certain:
Approximately 10.7 years (WAULT)
Size:
Approximately 30,550 sq m (328,831 sq ft)
Vendor / Agent:
RSM Farrell Grant Sparks and GVA Donal O’
Buachalla as Receivers on behalf of NAMA /
Savills & Knight Frank
Purchaser / Advisor:
Irish Life / CBRE, Hibernia REIT / Unadvised,
Lone Star / Unadvised
The Redwood Portfolio comprised a number of prime office and retail
properties located in Dublin City Centre including No. 2 Grand Canal
Square and The Observatory. The portfolio benefited from effectively full
occupancy with tenants including Morgan Stanley, William Fry Solicitors,
Capita and Hutchison 3G. The total current rent for the portfolio was in
excess of €8.47 million per annum.
savills.ie/research
savills.ie/research011
11
Investment Report
2015
FIGURE 5
Orange Collection
Location:
Charlestown, Finglas, Dublin 11
Lansdowne Gate, Drimnagh, Dublin 12
Beacon South Quarter, Sandyford, Dublin 18
Bakers Yard, North Circular Rd and Portland St,
Dublin 1
Sector:
Multi-family Portfolio
Sale Date:
Q3 2014
Sale Price:
€211.25 million
Initial Yield:
4.85% (Gross)
Term Certain:
N/A
Size:
761 Apartments, approximately 3,386 sq m
(36,447 sq ft) of commercial accommodation
and 4 development sites extending to
approximately 0.70 hectares (1.74 acres)
Vendor / Agent:
Mazars and ODPM as Receivers on behalf of
NAMA/ Savills & Hooke and MacDonald
Purchaser / Advisor:
IRES REIT / CBRE
The Orange Collection comprised four suburban Dublin multi-family
developments with a total of 761 apartments. The gross passing rent was
approximately €10.4 million per annum.
FIGURE 6
The Acorn Portfolio
Location:
Blackpool Shopping Centre and Retail Park,
Cork
Millfield Shopping Centre, Balbriggan, Co.
Dublin
Showgrounds Shopping Centre, Clonmel, Co.
Tipperary
Sector:
Retail
Sale Date:
Q3 2014
Sale Price:
€171.5 million
Initial Yield:
7.40%
Term Certain:
Approximately 9.72 years (WAULT)
Size:
Approximately 66,890 sq m (720,000 sq ft)
Vendor / Agent:
Grant Thornton as Receiver on behalf of NAMA
/ JLL & Bannon
Purchaser / Advisor:
Vӓrde / HSBC
The Acorn Portfolio included a suburban Dublin shopping centre, two
provincial shopping centres and a large open use retail park with an
overall gross passing rent of approximately €13.25 million per annum. The
portfolio had a total area of approximately 66,890 sq m (720,000 sq ft).
savills.ie/research
savills.ie/research 012
12
Investment
Report
Market
Hotel
Report
2013
2015
FIGURE 7
The Platinum Collection
Location:
Block B Riverside, Sir John Rogerson’s Quay,
Dublin 2
Riverside IV, Sir John Rogerson’s Quay, Dublin 2
Hume House, Pembroke Road, Ballsbridge,
Dublin 4
Grand Mill Quay, Barrow Street, Dublin 4
Sector:
Office
Sale Date:
Q1 2014
Sale Price:
€165 million
Initial Yield:
4.72%
Term Certain:
Approximately 4.2 years
Size:
Approximately 29,837 sq m (321,162 sq ft)
Vendor / Agent:
Grant Thornton and RSM Farrell Grant Sparks
as Receivers on behalf of NAMA / Knight Frank
& CBRE
Purchaser / Advisor:
Blackstone / CBRE & Google / Unadvised
The Platinum Portfolio comprised four office properties including three
Grade A office buildings extending to a total area of approximately
29,837 sq m (321,162 sq ft). The total passing rent of the portfolio was
approximately €8.1 million per annum.
FIGURE 8
Parks Portfolio
Location:
The Park, Carrickmines, Co. Dublin
M1 Retail Park, Drogheda, Co. Louth
Poppyfields Retail Park, Clonmel, Co. Tipperary
Four Lakes Retail Park, Dublin Road, Co.
Carlow
Lakepoint Retail Park, Mullingar, Co. Westmeath
Sector:
Retail
Sale Date:
Q4 2014
Sale Price:
€158 million
Initial Yield:
5.68%
Term Certain:
Approximately 11 years (WAULT)
Size:
Approximately 71,885 sq m (773,769 sq ft) and
31 acres of development land
Vendor / Agent:
Grant Thornton as Receiver on behalf of NAMA
/ CBRE & DTZ
Purchaser / Advisor:
Marathon & IPUT / Savills
The Parks Portfolio included the Park Carrickmines in addition to four
regional retail parks with an overall gross passing rent of approximately
€9.46 million per annum. The portfolio had a total area of approximately
71,885 sq m (773,769 sq ft) in addition to 31 acres of development land.
savills.ie/research
savills.ie/research013
13
Investment Report
2015
FIGURE 9
Project Cherry
Location:
Cherrywood Business Park, Dublin 18
Sector:
Office & Retail & Future Development Land
Sale Date:
Q4 2014
Sale Price:
Region €280 million (€140 million of Commercial
Investment Property)
Initial Yield:
5.11%
Term Certain:
Approximately 6 years
Size:
Approximately 52,312 sq m (563,085 sq ft)
in addition to approximately 388 acres of
undeveloped land
Vendor / Agent:
Grant Thornton as Receiver / Savills
Purchaser / Advisor:
Hines & King Street / Unadvised
Project Cherry comprised a mixed-use business park including offices
and ancillary retail totalling approximately 52,312 sq m (563,085 sq ft) in
addition to approximately 388 acres of undeveloped land within an SDZ.
The commercial element benefited from a WAULT of approximately 6
years and had an overall income of €7.47 million per annum.
TABLE 10
Spectrum Portfolio
Location:
Dundalk Retail Park, Dundalk, Co. Louth
Douglas Court Shopping Centre, Douglas, Cork
Bloomfields Shopping Centre, Dun Laoghaire,
Co. Dublin / Kilbarrack Shopping Centre,
Kilbarrack, Dublin 5 / The Mill Shopping Centre,
Clondalkin, Dublin 22 / B1 & B2 Ninth Lock
Road Offices, Clondalkin, Dublin 22
Sector:
Retail & Office
Sale Date:
Q4 2014
Sale Price:
€129.25 million
Initial Yield:
7.17%
Term Certain:
Approximately 8.3 years
Size:
Approximately 43,760 sq m (471,026 sq ft)
Vendor / Agent:
Lloyds with Receiver / Savills & Bannon
Purchaser / Advisor:
Vӓrde / HWBC
The Spectrum Portfolio comprised a variety of Dublin and regional based
retail properties including a retail warehouse, grocery retail centres, town
centre retail and a suburban shopping centre as well as a State let office
block. The overall rent from the portfolio was approximately €9.69 million
per annum.
savills.ie/research
savills.ie/research 014
14
Investment
Report
Market
Hotel
Report
2013
2015
Savills Research and Investments
Please contact us for further information
John McCartney
Domhnaill O’Sullivan
Fergus O’Farrell
Dessie Kilkenny
Diane Crean
Marguerite Boyle
Brendan Delaney
Kevin McMahon
Carol Cavanagh
Linda Forsyth
Leona Mullan
Shane Corby
Paul Callanan
Director of Research
Savills Ireland
+353 (0) 1 618 1427
[email protected]
Senior Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1334
[email protected]
Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1314
[email protected]
Director, Investment
Savills Ireland
+353 (0) 1 618 1364
[email protected]
Senior Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1715
[email protected]
Graduate Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1450
[email protected]
Director, Investment
Savills Ireland
+353 (0) 1 618 1311
[email protected]
Senior Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1328
[email protected]
Senior Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1418
[email protected]
Divisonal Director, Investment
Savills Ireland
+353 (0) 1 618 1401
[email protected]
Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1424
[email protected]
Associate, Investment
Savills Ireland
+353 (0) 1 618 1495
[email protected]
Surveyor, Investment
Savills Ireland
+353 (0) 1 618 1377
[email protected]
Anna Gilmartin
Surveyor
Savills Ireland
+353 (0) 618 1460
[email protected]
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 180 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. A unique
combination of sector knowledge and entrepreneurial flair give clients access to real estate expertise of the highest calibre. We are regarded as an innovative-thinking organisation
backed up with excellent negotiating skills. Savills chooses to focus on a defined set of clients, therefore offering a premium service to organisations with whom we share a
common goal. Savills takes a longterm view to real estate and works hard to invest in long term and strategic relationships and is synonymous with a high quality service offering
and a premium brand. This bulletin is for general informative purposes only. 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 references to space and floor areas are approximate and apply to the greater Dublin area. The bulletin is strictly copyright and
reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. (c) Savills Ltd September 2015.
savills.ie/research
savills.ie/research015
15