Colliers report positive Q1 Irish Investment activity, but current market suspension to continue beyond Q2
SUMMARY
The Irish property market had a strong start to 2020 with quarterly volumes reaching €674m, a 13% increase in transaction activity on Q1 2019. However, this healthy start to 2020 masks the considerable disruption that Covid-19 is having on the real estate market as the virus emerged in Ireland towards the end of Q1. Covid-19 has caused widespread uncertainty and the market is generally in a state of suspension as investors hold their positions and wait for more clarity on the full effects of this global pandemic to be understood.
- The additional level of travel restrictions and Government quarantines will minimize the ability to run due diligence and thus any new sales activity will likely be pushed back beyond Q2. On a domestic level, Ireland was effectively at full employment, with an unemployment rate of just over 4%. It is forecasted that this figure will rise closer to 20% in the short term as the effects of Covid-19 take hold.
- Furthermore, following the general election on February 8th uncertainty remains around the formation of the new government and the further effects this will have on the Real Estate and Investment market.
- Encouragingly, investor demand remains strong and there is considerable equity to be deployed in the Irish market (86% of Q1 spend came from Cross Border Investors). Once activity re-commences, we expect a bounce in transactional activity and an active investment market.
TRANSACTION ACTIVITY
- Total quarterly investment in Irish real estate across all commercial and residential segments reached €674m in Q1. The Office sector remained in high demand and accounted for 54% of all transactions with quarterly volumes reaching €366m. The second-highest performing sector was Student Accommodation which attracted €120.6m across two deals and accounted for 18% of the transaction activity for the quarter.
OFFICES
- €366m of office transactions across 14 deals changed hands in Q1, representing an increase of 24% in comparison to the same period last year. Dublin remained the focus, the largest deal being the sale of the Treasury Building to Google for €115.5m. Although currently let to the NTMA, it will eventually provide Google with additional space bringing its footprint in Dublin to just over one million sq ft. In the quarters second largest office deal, Axa IM purchased La Touche House from Credit Suisse for €84.25m reflecting a NIY of 5.31%. The deal represented a considerable premium for Credit Suisse who acquired the building in 2013 for €35m. The third largest transaction was the acquisition of Blocks 4 and 5 Harcourt by Arena Invest. They paid €54m (NIY 5.09%) for the two Blocks which were originally acquired by Ares and Avestus for €47m in 2017. Other transactions of significance included KanAm’s acquisition of One Hatch Street for €35.1m (NIY 4.01%), Corum’s off market acquisition of Classon House for €29.25m (NIY 6.99%) and the sale of Phoenix House by Henley-Bartra for €16m (NIY 5.75%). It is noteworthy that Blocks 4 and 5 Harcourt Centre, Classon House and Phoenix House were all acquired and re-traded since 2016, reflecting the increase in values and strong demand.
- Covid-19 Comment – Covid-19 is causing wide spread uncertainty and the full impact is not yet understood. We still expect strong demand from international and Irish investors in 2020, albeit with reduced transactional activity in Q2, due in part to the increases in travel restrictions.
RETAIL
- Activity in the retail sector was relatively subdued in Q1 with only €32m transacting, compared to €315m in Q4 2019. Just seven deals were above €1m and over 50% of the transaction value was in Galway. The largest deal in Q1 was the sale of Westside Shopping Centre, Galway to an Irish investment firm for €9.43m reflecting a NIY of 7.25%. Other deals of note included the sale of Eason’s on Shop Street, Galway to European fund manager MNK Partners for €7.33m (NIY 6.50%) and the sale of Aldi in Carrigtwohill Co. Cork for €5.6m (NIY 7.34%). Colliers International acquired the property on behalf of Corum Asset Management.
- Covid-19 Comment – Retail in large has been impacted negatively. Cafés and restaurants have moved to take-away only, while non-essential businesses have been forced to close. The restrictions imposed by the Government are decreasing investor’s appetite for this sector further. Out of town supermarkets such as Aldi, Lidl and Supervalu as well as pharmacies have seen a positive effect and are all trading strongly.
INDUSTRIAL
- There were nine industrial deals in excess of €1 million completed totalling €29.6m. The largest deal of the quarter was the sale of Jamestown Business Park for €10.75m, the sale comprised of 20 industrial units extending to approx. 167,205 sq ft with a partially completed development site. Elsewhere 90/91 Furze Road & 77 Furze Road in Sandyford sold to a private Irish investor for €5m reflecting a NIY of 6.90%, the sale comprised of two industrial units one of which was fully let to the OPW and the other which was sold with vacant possession. The largest deal outside of Dublin was the Sale and Leaseback of the Rye River Brewing Company HQ in County Kildare which was sold by Colliers International for €3.33m reflecting a NIY of 7.10%.
- Covid-19 Comment – The industrial and logistics sector is expected to benefit most. The restrictions in travel and movement will see an increase in e-commerce as retailers try to build out their online capacity which will put additional pressure on delivery networks and supply infrastructure.
PRS/STUDENT ACCOMMODATION
- The Student Accommodation sector was the second highest performer in Q1 due to two major deals in the quarter. The largest transaction was Round Hill Capital’s acquisition of a 368-bed student accommodation development in the Liberties, Dublin 8. The development which is due to commence in July 2020 is Round Hill’s third Student Accommodation acquisition in Ireland. Elsewhere, US based Exeter Property Group acquired a 268-bed student residence scheme at the National College of Ireland Dublin for €35.6m. Cypriot headquartered fund LRC Group, acquired 102 apartments at the Herberton apartment development in Rialto, Dublin 8 for €36.5 million representing a NIY of 4.07%.
- Covid-19 Comment – Following the General Election in February 2020, investors remain concerned over Government formation talks and the possibility of further changes to Stamp Duty and indeed rent controls. The emergence of Covid-19 has caused widespread uncertainty particularly with Landlords and will undoubtedly have an effect on the investment market.
MICHELE MCGARRY
Director – Capital Markets
Direct +353 1 633 3738
michele.mcgarry@colliers.com
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