Private investors and business syndicates were again the dominant force in the commercial property sector this year, far outspending the institutions and pension funds in a fast-growing market. Private funds accounted for £467 million in investment deals, while the institutions spent £148 million, much of it on prefunding speculative developments.
The enhanced role of the private sector comes at a time when commercial property investments are showing exceptionally strong returns - 19 per cent in 1996; 25 per cent in 1997 and more than 35 per cent this year. The property boom looks certain to continue, even if returns may be a somewhat lower than in 1998.
The changing profile of the commercial property market underlines the shift in wealth to business and professional people that has taken place over the past few years. The private sector has invested over £1,000 million in commercial property in the last three years alone, and probably up to £200 million sterling in the UK.
A further £1,150 million of savings and borrowings has been spent on residential investments since 1996, though this business has been reduced to a trickle since the Government introduced the Bacon measures last April.
Once the problem of finding starter homes for young couples has been sorted out, the Government will inevitably have to restore the mortgage interest relief to those buying apartments as long-term investments. Small investors must expect that they will be treated no differently than the well-heeled players who buy office blocks and shopping centres to top up their pensions.
The private investors who have been calling the shots in the commercial property market are mainly professionals, housebuilders, industrialists and businessmen who have reaped good profits from the buoyant economic conditions of the past few years.
More than half the £467 million they spent this year was on properties carrying tax breaks. Tax shelters will be more difficult to come by in the future with the introduction of a £25,000 limit on capital allowances and the phasing out of tax designated areas in the new year. With Brussels apparently reluctant to make more tax incentives available on top of a 12.5 per cent corporation tax, the big investors may no longer be able to find a tax haven in Dublin's former rundown areas.
Any new form of tax incentives will probably have to be funded directly by the Exchequer with the bonus going to owner-occupiers rather than investors.
Either way, the private sector seems set to continue to be a major player, as long as cheap money remains so plentiful and business confidence continues to drive up rents and values. Many of the experts expect the good times to continue for the foreseeable future given the shortage of new buildings and the fact that inquiries by end users have never been stronger.
There seems to be consensus that office rents, in particular, will strengthen further over the next year, going even higher than the record £26.50 per sq ft recently agreed by Scottish Amicable for 40,000 sq ft of space at The Sweepstakes in Ballsbridge, Dublin 4.
With city centre office sites now mainly confined to the Dublin docklands, developments over the next decade seem likely to switch to south Dublin suburbs such as Leopardstown and Sandyford. Sites adjacent to the M50 are also very much in favour because of the ever-worsening traffic in the city centre.
Some of the large office schemes on the drawing boards are likely to be funded by European investors once the anticipated strength of a single currency kicks in at the end of the year. With the same ground rules applying throughout the euro zone, Dublin is just as likely to attract funds as Paris or London, more especially after its high economic growth in recent years and its projected growth of 5 to 6 per cent next year.
In the retail sector, the UK multiples led by Tesco are already scrambling for sites for huge, stand-alone stores, which not only threaten traditional towns and villages but existing shopping centres as well. The warning lights began flashing when Tesco agreed to pay £25 million for an 11-acre site at Liffey Valley Shopping Centre in west Dublin, where it plans to open a massive 70,000 sq ft outlet. The multiple also outbid all others for a site at the opposite end of the M50 near Malahide. However, both schemes are on hold until an official inquiry is completed on the implications of superstores.
In the meantime, planning permission is likely to be granted shortly for a £190 million shopping centre in Dundrum, which will have 350,000 sq ft of retail space, an office park, 150-bedroom hotel, multiplex cinema and a range of leisure and social facilities. On the opposite side of the city, Swords is to get a major shopping centre to cater for the fast-growing population in north Dublin.
Despite a fairly widespread view that west Dublin is already over-shopped, Liffey Valley looks set to get planning permission to double the size of the existing centre to 500,000 sq ft. Not to be outdone, The Square, in Tallaght, is also to lodge a planning application for yet another 100,000 sq ft. In south Dublin, Stillorgan Shopping Centre is awaiting a decision from An Bord Pleanala for a major redevelopment scheme. All the centres want to cash in on the extra spending power, which has seen retail sales increase by an average of 5 per cent per annum over the past three years.
The good times are here - but the greater the heights the market goes to, the harder the fall when the next recession hits.
