With the business world in a spin over the instant wealth created by the IT start ups, many people seem to have forgotten that the Irish property market has been throwing up hundreds of paper millionaires over the past seven years. The overall returns from the commercial property industry have risen by an average of 21.3 per cent each year since 1993, enticing a whole new generation of private investors into an area that was dominated by institutions only a decade ago.
Private investors have become big players, snapping up buildings including The Patricia Bakery, on Lower Stephen's Street for £700,000-plus. The private sector has invested close to £1.5 billion in the last four years
The fast-changing profile of the commercial property market underlines the shift in wealth to business and professional people that has taken place in recent years. The private sector has invested close to £1.5 billion in commercial property in the last four years alone. Another £1 billion was poured into residential investments between 1996 and April, 1998, when the Government used the Bacon Report to clamp down on the small investors.
With the business world in a spin over the instant wealth created by the IT start ups, many people seem to have forgotten that the Irish property market has been throwing up hundreds of paper millionaires over the past seven years. The overall returns from the commercial property industry have risen by an average of 21.3 per cent each year since 1993, enticing a whole new generation of private investors into an area that was dominated by institutions only a decade ago.
The fast-changing profile of the commercial property market underlines the shift in wealth to business and professional people that has taken place in recent years. The private sector has invested close to £1.5 billion in commercial property in the last four years alone. Another £1 billion was poured into residential investments between 1996 and April, 1998, when the Government used the Bacon Report to clamp down on the small investors.
The enhanced role of the private sector has been particularly noticeable at a time when the market was showing incredibly strong returns - 19 per cent in 1996; 25 per cent in 1997; 38 per cent in 1998 and 31 per cent in 1999. Those levels naturally outperformed both gilts and equities and though the returns from property are expected to fall off further this year, the general view is that the country's longest ever property boom still has some distance to run.
The real winners in the last decade have been the owners of profitable businesses who found tax shelters and gilt edged investments when they bought office blocks in Dublin's International Financial Services Centre. That hole was finally plugged by the Government at the end of 1997 when they moved against high income earners who used the office investments to reduce their tax liabilities. Most of those who bought investments in the docks and other tax designated areas before the Government intervention, have made a killing.
Tax or no tax, the private sector now controls huge property assets which will ensure that they will remain major players in the future. However, there is clear evidence that the institutions have become more aggressive in recent months, moving quickly to clinch deals because of the pressure on them to find a home for vast sums of money accumulated over the past few years. An example of the new strategy was seen in the very first large deal this year when Irish Life outbid all comers to buy two buildings at the bottom of Dublin Grafton's Street at an initial yield of 4.1 per cent.
Suggestions that Royal Liver's decision to sell the two Grafton Street properties might lead to more investments coming on the market have so far proved wide of the mark. Institutions and private investors are reluctant to sell any income-producing buildings at a time when they are still showing good returns and when there are few opportunities to trade up. Though the market has probably peaked, the private investors have an emotional as well as a financial attachment to their properties and they wont be moving them on unless the sheriff is at the door.
Apart from the tax-driven investments, private investors now own a great deal of the smaller office blocks and Georgian buildings which were offloaded by institutions to "rebalance their portfolios" - a textbook exercise to move funds from older to newer buildings.
Having sold these inner city buildings over the past decade, the institutions are now discreetly trying to buy back many of them simply because they miscalculated the volume of office space that is needed in the city centre. The current shortage has sent rents soaring to record levels simply because there are too many companies chasing too few office blocks in the city.
The private investors are once again doing nicely because of the scarcity. They will continue to reinvest their profits in commercial property as long as cheap money remains so plentiful and business confidence continues to drive up rents and values.
