Ireland is one of 'hottest' hotspots for European commercial property deals
By Michael Hennigan, Finfacts founder and editor
Jan 16, 2014 - 8:06 AM

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Source: IPD via CBRE

From 67% losses from the late 2007 peak, Ireland is now one of the 'hottest' hotspots  for European commercial property according to research published Thursday. "With Ireland having seen a flood of deals," investors are beginning to focus on Spain, the research found.

Dublin is the biggest winner in this year's  PwC (PricewaterhouseCoopers) /  Urban Land Institute emerging trends' report, rising 18 places to second for existing investments and 14 places to first for new investments. Investors believe that 2014 will mark Dublin's comeback, driven by improving economic conditions, with unemployment at its lowest level since 2009, and forecasted GDP growth of 2 % this year.

The report, which includes an investor survey, says "Dublin's real estate market has been transformed from a 'no-go' location among investors only two years ago, to being one of the hottest markets in Europe, with both domestic and international investors attracted by pricing levels and Ireland's improving economic outlook. The report finds that 51% of respondents now see good buying opportunities in Ireland. "

The weight of international capital is leading investors to also turn to other recovering markets, such as Spain. The report highlights that 67% of respondents believe that there are now good buying opportunities in Spain, with the acquisition of the Parque Principado mall in Oviedo by Intu and the Canadian Pension Plan Investment Board for €162m highlighted as an indicator of mainstream interest in the market. However, sceptics argue that debt is very hard to attain and that it is a risky market to invest in before there are signs of any growth.

Investors have increased their allocations to property assets over the past couple of years, as low interest rates and governments’ quantitative easing programmes create a low-yield environment in which returns are hard to achieve in many asset classes. As a result there had been a “huge capital push” into Europe’s biggest real estate markets, said Simon Hardwick, a partner at PwC.

The competition for core assets has also led to an increase in investors looking beyond prime assets in major European markets such as London, Munich and Paris, and instead buying solid income producing assets in secondary cities. For example, office investors in Munich can achieve yields of approximately 4%, but those willing to invest in smaller German markets such as Stuttgart can achieve up to 6.5%. Investors are also looking to acquire secondary properties in major markets, which have good existing income streams or which, with careful asset management, could be transformed into core assets.

An interesting consequence of the "Battle for Assets" is that investors are increasingly considering development as a way of adding high quality assets to their portfolios. The report demonstrates that 71% of respondents believe that development is an attractive way to acquire prime property.

"The resurgence of investment in Ireland and how far the Spanish real estate market recovers, will be two of the key stories in 2014" commented Joe Montgomery, chief executive of ULI Europe. "Investor appetite in Dublin has been growing over the past 12 months with significant volumes of international capital chasing the best assets. Investor interest is now moving to Spain, where there are signs that opportunistic investors, who entered the market when Sareb opened for business last year, are now being followed by mainstream institutions. However, with limited signs of tenant demand and rental growth, questions remain as to how far the market recovery can go."

Sareb is the Spanish toxic property loans agency.

European commercial property rose to the highest level in 2007, since 2007, separate data from CBRE show. The data also shows that activity was up 21% year on the year to €154bn.

CBRE Ireland said on Tuesday that 96 investment transactions of greater than €1m concluded in the Irish market during 2013, totalling €1.78bn, compared to 35 transactions totalling €545m in 2012. Over 50% of the 2013 investment activity emanated from overseas investors. When loan sales are added, the total volume of activity in the Irish investment market in 2013 was more than €2.5bn.

The report should be available here or here on Thursday.

Chinese investment (ex Hong Kong) in Europe tripled last year as insurers, developers and private individuals joined the country’s sovereign wealth funds in seeking to diversify their assets outside Asia, analysis by research firm Real Capital Analytics (RCA) published Wednesday, shows.

Chinese investors purchased €3.05bn of commercial properties across Europe last year after they bought €978m of real estate in 2012, according to data compiled by RCA. The number of buildings acquired, including those that formed part of portfolio transactions, rose to 43 in 2013 from 10 a year earlier.

Joseph Kelly, RCA’s director of Market Analysis EMEA, said: “After an initial wave of investment by sovereign wealth funds, that was focused on large trophy assets in London, wealthy individuals, developers and insurers have become increasingly active across a broader range of property types, lot sizes and European locations.”

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