€5bn turnover predicted for Irish market

New research from agent JLL reports that turnover in the Irish commercial property investment market reached over €1bn in the first quarter of 2014.

"If demand remains strong, and the release of supply continues at the pace we have seen in the last six months, it is possible that total investment volumes across loans and direct sales could achieve €5 billion for 2014," said Hannah Dwyer, head of research at JLL.

If a figure of €5bn was reached for 2014 this would comfortably exceed the record turnover reported in 2006 of just over €3bn.

JLL reports that €934m was transacted across Ireland in Q1 on direct asset sales while there was also €287m of loan sales which pushed the total for the quarter to €1.22bn. Transactions in Q1 were dominated by mixed-use investments (€326m), followed by retail (€316m) and offices (€265m).

There were three sales with a value greater than €100m, including the purchase of Central Park in Leopardstown by Green REIT, Kennedy Wilson and Pimco for €311.5m.

According to Ms Dwyer: “As pricing for prime Dublin offices continues to intensify, we have started to see the spectrum of interest broaden from offices, with an uplift in demand and supply of retail opportunities in the last three months.

"With capital values in retail still 70 per cent below peak, and evidence of rental growth for prime, there is an opportunity for potential high returns in the retail sector, and investors are now starting to tap into this."

Market update
Lisney's Investment Update - Q1 2014 also reports a strong start to 2014.

It reports total investment accelerating in Q1 with domestic spend responsible for more than half of acquisitions with foreign capital behind at 47 per cent of purchases.

The update reports that retail property made up one-third of turnover. HSBC Alternative Investments' acquisition of a majority stake in Liffey Valley shopping centre in west Dublin for more than €250 million was the largest transaction in the sector – and also the largest retail investment sale in seven years.

“Retail looks set to be the recovery story of 2014,” said Lisney. “Rents in prime shopping centres and on prime high streets in Dublin stabilised at the end of last year and for the first time in six years, rose in Q1. Lisney’s rental indices show that Grafton Street increased by 1.2 per cent, Henry Street by 13.3 per cent and prime suburban shopping centres by 5.1 per cent in the opening months of the year. Growing sentiment in the sector, aided by the labour market recovery, has given investors confidence to consider the sector as a viable option.”

Lisney reports that almost €115m of new stock has been launched in Q1, with total availability currently at €325m but over 40 per cent of this is sale agreed. “Supply for the remainder of the year looks healthy with at least €700 million of identifiable additional stock to come to the market in the coming months. This could be further bolstered by portfolio sales which have the potential to significantly increase supply given the successful portfolio disposals that occurred in 2013.”

Deleveraging by banks and Nama will be the main source of supply going forward. Lisney’s update notes that “. . . a portfolio of assets including three regional shopping centres is to be brought to market by Nama in the next three weeks. Two of the centres are thought to be the Showgrounds Shopping Centre in Clonmel and Blackpool Shopping Centre in Cork. Nama hopes to raise €150m from the entire portfolio. This disposal will be watched with interest as both regional and retail investment properties have only recently come back into focus as viable investment options.”

The update concludes that “as pricing settles in line with long term averages, longer term owners are likely to take over from the trader / opportunity buyers that have been most active up to this point in the cycle”.