Does Ireland still look good to foreign investors?
Overseas observers continue to show more confidence in the prospects for the Irish commercial property market than some locals.
This was reflected in the contrasting comments made by two of the speakers at the recent MSCI seminar on the topic of the IPD/MSCI Index, which is considered to be the bible of the investment market.
On the cautious side Marie Hunt of CBRE reflected the views of a number of Irish agents when she remarked that she saw little scope for further yield compression in terms of Irish office investment.
This suggests that investors are unlikely to chase up prices for the sake of buying trophy properties or in the hope of making a handsome profit from re-trading but instead any increase in the prices for prime Dublin offices would be pegged to the rate of increase in rents
But Peter Hobbs, managing director research at MSCI, which compiles the index, was more optimistic.
While agreeing that "yields feel low and should have less potential to compress," and that "more recently we've been seeing a bigger boost to performance from rental growth," he went on to provide qualified reasons for further yield compression.
"Yields in Dublin and the rest of Ireland are, unlike many other markets, above the historic lows they have reached," Hobbs said.
He went on to point to the relative attractiveness of these yields and their wide spreads relative to bond yields.
Other factors he cited in Ireland's favour include: Investors also desire to move out from core, aggressively priced, markets such as London to seek higher yielding real estate; The prospect of strong rental growth in Ireland; recognition of Dublin as benefiting from a diverse and strong economy with a transparent real estate market, means that Dublin is high on the radar of investors as reflected in the recent survey which showed Dublin was the third most favoured market in Europe.
"It is this combination of factors that suggest there could be further yield compression over the coming months," he said.
The IPD index showed that Irish commercial property was the highest performing property market in 2014 on the basis of its 40pc returns.
Before all the other countries had finalised their 2015 returns, the preliminary feedback by the end of January indicated that even though Irish returns slipped to 25pc in 2015, these could again become the highest in the world for the second year is a row.
Hobbs did qualify his remarks. "But we are operating in a period of significant financial market uncertainty so it is hard to anticipate how these pressures will manifest themselves over the coming months. As an example, the stock market volatility could increase appetite for real estate but, through the denominator effect and decline in oil prices affecting a number of Sovereign Wealth Funds, could lead to capital withdrawals."
"It certainly is a fascinating time for real estate, again," he added.
Yet another factor that could compress Irish yields are the prospects of more Asian investment diversifying into the Irish market. To date Chinese investors have remained shy of prime Dublin properties although at least one or two are believed to have shown an interest in Project Jewel and the Dundrum Town Centre.
But purely on the basis of their need for diversification, Hobbs believes that those Asian investors who need to reduce their risk from over exposure to Asian and other markets would benefit "from building their exposure to Ireland real estate but…the relatively small size of the (Irish) market means it is not a major destination for most of them right now."
But he also suggested that investors in some low risk markets such as Canada, Australia, Switzerland and Germany could also benefit from diversification into the Irish market.
Referring to other possible investment, he said that the recent Urban Land Institute/PwC survey showed Dublin was the third most favoured market in Europe among Europeans. This survey reflects the opinions of more than 500 internationally renowned real estate professionals, including investors, developers, lenders, agents and consultants.
Mr Hobbs also pointed out that Dublin might be favoured by those North Americans who are "looking to gain access to Europe and concerned over the aggressive pricing of London and elsewhere, such as Germany."
Other factors in Dublin's favour include the fact that its property yields were as much as 469 basis points above Irish 10 year bond yields in September 2015, one of the widest spreads in the world. Its 10.2pc five year annualised income returns are also above their historic averages.
However he also warned that the spreads can be volatile and have fallen into negative territory. In addition investors who invest in specific properties also fare best.
At the same seminar Colm Lauder, senior associate, MSCI, agreed with Irish agents that "rental value growth is now the primary driver of performance in Ireland, rather than yield movement, a sign that the occupier market is driving performance rather than investor demand."
The IPD index showed that Dublin 4 offices were the best performers with 23pc rental growth in 2015 helping to boost returns to 33.7pc. Next best was Grafton St retail with a 17.9pc rent increase boosting returns to 28.1pc.
Dublin's northside shopping precinct of Henry and Mary streets on the back of 13.1pc capital growth and 7.7pc rental growth achieved total returns of 18.4pc.
Despite the fourth quarter surge in retail returns, Mr Lauder says that a comparison of yields suggests greater rental potential in offices. While initial office yields have fallen to 4.8pc, reversionary office yields are closer to 5.5pc and the 70 basis point spread suggests further scope for rental growth.
Meanwhile a recent DTZ Sherry FitzGerald report says that prime Dublin office yields may be even lower at a very tight 4.25pc but have stabilised at those levels.