Real Estate November 2019
This month we provide an update on our recent activity in the Residential/PRS, Student Accommodation and Retail sectors. Throughout 2019 we have seen an increased interest in the Irish Real Estate market from non-Irish institutional capital, particularly from Asia. Below we have included a special focus on Asian investment in Irish Real Estate. Our article of interest for this month is CBRE’s Bi-Monthly Market Update.
Dallan Gallagher is a Manager on the Elkstone Real Estate team
ELKSTONE REAL ESTATE MARKET OVERVIEW
Our 29 unit, modular-built PRS development in Islandbridge is nearing completion, while our 17 unit development in Rolestown is progressing well.
Our planning application for a 125 build to rent development has been submitted to An Bord Pleanála and we expect to submit a planning application for a medium sized development in Galway by the end of November. We are also completing the purchase of a number of residential sites in Dublin, which will complete before year-end.
The Steelworks and Marsh’s Yard have been nominated for a number of design awards, including in the residential category at the annual Fitout Awards, which will take place later this month.
Elkstone will acquire a number of new sites in Dublin, Galway and Belfast in the coming weeks.
We recently refinanced a mezzanine loan provided to a midlands retail, with our investors repaid in full with accrued interest. We will also acquire a significant retail development before the year-end.
SPECIAL FOCUS THIS MONTH: ASIAN INVESTMENT IN IRISH REAL ESTATE
Throughout 2019 we have seen an increasing interest in the Irish real estate market from non-Irish institutional capital, particularly from Asia. Many of the buyers represent long term pension capital, attracted to asset categories that can deliver long-term secure income like Ireland’s prime office and private rental sectors.
Asian investors spent almost €160 million buying Irish commercial property in the first three months of 2019. A report by BNP Paribas Real Estate, found that overseas investors spent a total of €365 million in Ireland in Q1 2019; with Asian investors accounting for 43 per cent, or €157 million. In addition, Chinese investment in Irish real estate stood at €128 million in the first six months of the year, compared with €80 million in 2017, out of a total of €9bn across Europe as a whole. (Baker McKenzie, 2019)
European countries are of particular interest to Asian investors for a variety of reasons, including currency trends and availability of stock. Valuations in Asia are higher than they have been in the past 10 years, with much of the investment focused on Asia coming from investors from outside of the region, driving up valuations in some of the core markets and increasing competition. Coupled with lower yields, it is perhaps not surprising that we are seeing more activity in Ireland and other European regions, where yields are potentially more attractive.
Asian asset managers are opportunistically targeting developing Europe, particularly cities with growth potential; perhaps one of the most compelling reasons to invest in Dublin real estate. Population forecasts undertaken by the United Nations show that, not only is Dublin expected to be the fastest growing capital city in Europe between 2020 and 2035, it is expected to be the fastest growing city of any of the 162 European cities greater than 300,000 people over the same period. (Knight Frank 2019). Furthermore, the European Commission has predicted that Ireland’s GDP will grow by 5.6% this year, the highest in the EU for 2019. This compares to a predicted EU average growth rate of 1.4% for this year and for 2020 and 2021.
Increased investment from Asian entities in Ireland has consequently been driven by such solid domestic economic fundamentals and rental growth which contrasts with the situation currently being experienced in some other European investment markets. More than €800 million has so far been invested directly in the Irish commercial property market by Asian investors since 2017, with Asian investors accounting for 11 per cent of total investment spend in Ireland in 2018 and 19 per cent in the first half of 2019.
Examples of Irish properties sold to Asian investors include Charlemont Exchange office building in Dublin 2 for €145 million; Dublin Landings, Dublin 2, for €106.5 million and the Beckett office building in Dublin 3, for €101 million. More recently the €167 million purchase of the Nova Atria building in Sandyford Business Park brings Singapore-based Mapletree’s investment to date in the Irish property market to €407 million, after their ‘mega-deal’ purchase of the Sorting Office building in Dublin Docklands for €240 million.
Whilst Asian capital is still being deployed in the UK, there appears to be some caution as a result of Brexit and fluctuations in Sterling. According to CBRE, there is a significant pool of Asian capital targeting property investment opportunities in Ireland and many potential buyers are focusing on Dublin because of Brexit and to take advantage of currency arbitrage. Additionally, whilst most of the interest to date has been for office buildings, CBRE has also noted Asian interest in deploying funds into the build-to-rent sector. At this point in the cycle, the investment market is characterised by new Asian investors focused on prime office and operating residential assets with secure, long-term income streams.
Investor sentiment remains very positive with appetite heightened by the very significant yield premium that Irish real estate currently offers. Asian net investment in Irish real estate has continued to rise since 2013 and may perhaps be anticipated to continue doing so, particularly should the UK represent a less interesting market for investors post-Brexit.
With a growing middle class in Asia and a constantly changing global real estate market, how and where Asian investors place their money is going to remain an interesting sector to observe. The ever increasing number of Asian investors coming to the Dublin market over the past year is helping to mitigate risk and, in a positive reinforcement loop, attracting further Asian buyers to participate in the market here. (Knight Frank, 2019).
For example, the Korean Won is in a strong position and the Euro has been quite stable, so Continental Europe at the very least will be expected to remain attractive for Asian investors. Furthermore, depending on the type of investor and their investment strategy, Irish commercial property remains an attractive asset class particularly for pensions funds who are generally risk averse.
Ireland may once have been viewed as being too small for many of the large Asian investors, who focused their attention on London and other EMEA capitals. However, with new buildings being produced here as a result of our construction boom; lower interest rates and historically low yields in the Asian regions may suggest that outbound Asian investment will be attracted to Ireland for some time.
Real Estate Article
Our article of interest for this month is CBRE’s Bi-Monthly Market Update, which provides an overview of the current status in each Real Estate sector in Ireland Read more.