International private equity buyers who acquired Dublin office buildings at ultra-low prices in the crash are cashing in on their investments and moving on, new research finds.
Consultancy firm Savills Ireland said private equity groups were “re-trading” Irish properties to recycle capital for other investments, leading institutional investors and real estate investment trusts (REITs) to intensify acquisitions.
The private equity groups are moving into higher-yielding Irish sectors such as retail and to other markets altogether.
Savills said some €1 billion in income-producing property had changed hands since the start of the year, an 8 per cent rise on the same period in 2014 .
Deleveraging
Other forces behind the rise include deleveraging activity led by Nama and withdrawing foreign banks. Assets collateralising €30 billion in loan book debt traded in 2014 are also expected on the market. Asset portfolios acquired in the last 18 months are to be re-traded as individual investments.
Given the abundant supply of property on the market, Savills said investment could reach record levels in 2015. The rise in transactions comes amid a shortage of new office space in Dublin, which is fuelling an increase in rents and led to concern that foreign direct investment could be hampered.
The firm’s assessment comes after the Department of Finance reported a large increase in stamp duty from property transactions in the first quarter of year. Stamp duty payments from property transactions rose to €75 million from €50 million in the same period in 2014. Some 60 per cent was derived from sales of commercial property, with the remainder in the residential sector.
“The emergence of institutional investors and REITs is a subtle message that Ireland’s economic recovery is real,” said John McCartney, Savills Ireland director of research. “These players typically invest for the long term and therefore their involvement signals a perception that rents and capital values are underpinned by genuine occupational demand.
“Private equity investors seized the opportunity to pick-up distressed assets – particularly offices – at rock-bottom prices in 2012 and 2013. However, as the recovery has gained strength, office yields have continued to harden, which has enabled private equity buyers to cash in and move into higher yielding sectors.”
Mr McCartney’s report suggests investor appetite for Dublin offices will remain strong as the supply of new business space will not be sufficient to meet demand for two years.
“Occupier demand will be underpinned by forecast GDP growth of around 3.7 per cent per annum out to 2018.”
Vacancy rates
However, little if any net additional office space is in the pipeline for the next two years.
“Inevitably, therefore, vacancy rates will fall further and rents will continue to rise rapidly,” Savills said. “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.”
