Irish property magnates are shifting their focus from western Europe to markets that offer yields of up to 15 per cent, writes Gabrielle Monaghan
Irish commercial property investors are increasingly looking outside established markets in Western Europe in favour of real estate in central and eastern Europe in search of greater returns, according to Enda Faughnan, a partner at PricewaterhouseCoopers.
"The bigger amounts are still going to established markets like the UK, but the less established markets are where the greater opportunities are," Mr Faughnan said.
"Yields in established markets are more compressed and that's pushing money to newer markets. Though, obviously, there's greater risk involved with new markets."
Yields of between 10 per cent and 15 per cent are available in certain sectors and locations, well ahead of established markets in the West, PwC said.
The consultancy is just one of a raft of Irish advisers looking to capitalise on the growing trend of Irish property investors looking abroad in search of opportunity.
It has real estate teams in 14 countries in central and eastern Europe that advise developers and investors on tax, local legislation and other issues.
Foreign investment in the central and eastern European property market is on track this year to exceed the record €4.1 billion spent in 2004, when the volume of property transactions more than doubled, CB Richard Ellis said in September.
Irish investors make up 8 per cent of all property investment in eastern Europe since 1998. Almost 90 per cent of the more than €800 million spent by Irish companies in the region in the last seven years has been invested since the start of 2003.
One of the largest transactions in central and eastern Europe this year was carried out by Ballymore Properties, led by Roscommon-born Sean Mulryan.
Ballymore, the second-largest landowner in London's Docklands after Canary Wharf, said in August it would build a new riverfront district in the Slovakian capital of Bratislava.
The group is spending more than €250 million on the development of the first phase of the project, which will include Slovakia's largest shopping centre.
Ballymore has already pumped more than €100 million into central Europe since the company's first foray into the region a decade ago.
The Irish spent €6.8 billion on international and domestic property in 2005, CB Richard Ellis estimated.
Of the 25 members of the newly expanded European Union, Ireland has the second-highest purchasing power after Luxembourg in terms of real income per capita. Latvia has the lowest purchasing power per person.
Demand from Irish investors is being driven by a "huge wad of money chasing product," Mr Faughnan said.
"Some big European pension funds that had underinvested in real estate have been looking to bring property up to 15 per cent of their portfolio from about 7 per cent. On top of that, you have the emergence of the high-net worth class.
"A lot of it has to do with low interest rates" in the euro zone and countries with euro-pegged currencies.
Demand for real estate in central and eastern Europe is being driven, too, by the accession of 10 new countries to the European Union in 2004. In the cases of Bulgaria and Romania, it is the prospect of their joining the European Union by 2007 that is driving much of the demand.
Turkey and Croatia, which are both also attracting investment from Irish property purchasers, are two other countries that are in talks with a view to entering the EU over the longer term.
In addition, export-oriented foreign direct investment and growth in consumer spending are powering growth in the sector, according to PwC.
The retail market in the region, which accounts for about half of foreign property investment, is buoyed by the increase in out-of-town hypermarkets, rising purchasing power, and the entry of western consumer brands and retail chains, PwC said.
However, the largest Irish players in the European property market are still predominantly focused on Ireland and the UK. The Irish emerged this year as the most aggressive foreign buyers of London assets.
Quinlan Private this summer paid more than £500 million (€732.2 million) for a site in Knightsbridge, between those of luxury retailers Harrods and Harvey Nichols. Last year, Derek Quinlan was head of a syndicate that bought the Savoy Group for £750 million.
Ballymore, which entered a depressed UK property market in the early 1990s, now plans some £11.5 billion worth of projects in Britain.
It was granted planning permission this year to build one of Europe's tallest residential developments in London's Docklands.
Sloane Capital, a group backed by horse-racing magnates John Magnier and JP McManus, spent more than £170 million on Standard Chartered's new headquarters in London's financial district, while William Ewart bought the shopping complex at Fulham Broadway in west London for £117.5 million.
Fermanagh entrepreneur Sean Quinn was another to get more heavily involved in the UK property market in 2005, paying £186 million for the prestigious Belfry golf course complex.
Mr Quinn is ranked as the richest Irish property investor in the UK by the Estates Gazette Rich List. Mr Quinn is 11th on the list, with net assets of £810 million.
One of the factors that continues to play into the hands of UK sellers attracting Irish interest, according to PwC's Mr Faughnan, is the red tape involved in concluding deals in the former communist states of eastern Europe.
"After the fall of Communism, land titles were reverted back to their owners before say, 1945," Mr Faughnan said. "So the title to the land may be difficult to trace if various descendants of the original owners have claims to the land.
"In certain countries, the land register is a bit of a mess. But they are getting better, especially when they have to bring their laws in line with EU laws."
Whether anything is able to curb the current Irish obsessions with investment in property is a moot point.
The likelihood for 2006 is that we will see more rather than fewer of the headline grabbing deals that were a feature of the past year.
