Tuesday 25 October 2016

Summer property deals to push 2016 total over €3.5bn

Donal Buckley

Published 01/09/2016 | 02:30

The Neptune House apartment building in Dun Laoghaire has been sold for €72.5m to SW3 Capital and Tristan Capital Partners
The Neptune House apartment building in Dun Laoghaire has been sold for €72.5m to SW3 Capital and Tristan Capital Partners

Almost €180m worth of property was transacted in six deals during the balmy days of July and August. This brings to over €3bn the value of the deals done so far this year. With investment funds looking set to snap up Liffey Valley Shopping Centre, which has a €600m price tag, and the former Burlington Hotel expected to sell to a German fund for around €180m, the market may well exceed experts' forecasts for between €3bn and €3.5bn worth of deals for all of 2016.

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"As the autumn selling season kicks off, a number of investment properties will be formally launched for sale," says Marie Hunt, director of CBRE, in the firm's latest bi-monthly market report.

"Pricing remains steady at the beginning of September although, as previously indicated, investors are increasingly focussed on core assets, which suggests that there may be some softening in pricing for secondary assets in the Irish market as the year progresses.

"Investors are encouraged by the continued strength of occupational activity in the Irish market, as well as the potential for some further rental growth in the medium term," she adds.

Transactions announced in recent weeks have included the sale by Cosgrave Developments of Neptune House, comprising 197 apartments under construction in Dun Laoghaire for €72.5m, which was bought by SW3 Capital and Tristan Capital Partners.

The European Retail Fund acquired Lucan Shopping Centre in West Dublin for €47m. It was one of four shopping facilities which were being traded on by Starwood Capital, Key Capital and Catalyst Capital, about three years after they bought them from Nama for less than €200m.

Also during the summer Standard Life sold its Dublin offices on St Stephen's Green, Dublin 2, for €26.825m and IRES REIT bought a block of 89 apartments in Clondalkin, Dublin 22, for €18.3m. Other sales included Units at Westlink Industrial Estate, Ballyfermot, Dublin 10 for €7.5m. A retail unit on Grafton Street sold for €6.75m.

"With a shortage of core office stock to satisfy the volume of investor appetite at present and less de-leveraging now occurring, the focus for autumn will be on securing product for sale, both on and off-market," says Ms Hunt.

"Although average lot sizes are likely to be smaller from this point forward, we will continue to see product being formally offered for sale as investors proceed with asset management on the sizeable portfolios acquired over the last few years.

"Given the lack of core office investment opportunities and the scarcity of debt financing, we expect increased focus on forward-funding transactions as well as investment in alternative sectors such as purpose-built residential rental schemes and student accommodation, which are generally less prone to cyclical fluctuations."

The report shows that yields have stabilised and remained unchanged since March in the prime offices at 4.65pc and high street retail at 3.25pc, with only industrial contracting - by 25 basis points to 5.5pc.

While Dublin city centre office rents generally have remained stable since April at around €619 per sq m, she expects that the shortage of office space will put upward pressure on rents in the medium term.

"It is expected that prime headline rents will shortly breach the €646 per sq m which is now being quoted for a number of prime schemes. At this juncture, prime rents look likely to end the year at approximately €673 per sq m. Occupiers that are in a position to sign pre-lettings will potentially have the opportunity to secure more favourable rental terms," Ms Hunt adds.

Despite the slowdown in office leasing activity during the traditionally quieter months of July and August, she believes that this year letting volume may reach last year's record levels. Almost 90,000 sq m was taken up in the first half of 2016.

A severe shortage of modern industrial properties in core locations continues to curtail the volume of deals in the sector. Consequently, less than 120,000 sq m of take-up was recorded in the Dublin industrial market in the first half of 2016, down 35pc on the same period in 2015.

Despite prime industrial rents rising by a further 13pc so far this year to €85 per sq m, only a small number of developers have engaged in speculative development.

Consequently she says industrial rents are on target to reach CBRE's forecast of €94 per sq m by year-end - a 25pc increase for the year.

In the retail sector a shortage of premises on some prime streets and schemes continues to frustrate potential occupiers.

"Prime retail rents in Dublin remain stable as we enter the autumn season and we are increasingly seeing evidence of rents improving in provincial locations. There has been particularly strong demand for premises in Cork of late, which is leading to a reduction in vacancy on many of the city's prime streets, with particular demand from food and beverage retailers," says Ms Hunt.

Lettings announced in recent weeks include: Starbucks at Cherrywood Business Park in the south suburbs; Five Guys at Dundrum Town Centre; The Kilkenny Shop at Ennis, Co. Clare; Homestore & More at Portlaoise Retail Park; Bean & Leaf at Patrick Street, Cork; Dealz at the former Epicurean Food Hall on Liffey Street, Dublin 8; Carluccio's at French Church Street in Cork and Sostrene Grene at Patrick Street, Cork and Pavilions Shopping Centre, Swords.

Demand for good quality Dublin pubs is outstripping supply, which is in sharp contrast to last year. This is partly due to transactional activity being subdued during the summer and partly because supply has been curtailed.

"Many publicans are working with new debt providers and trade has improved, with the result that there is less pressure to bring pubs to the market," says CBRE's John Ryan.

This also reflected in an increase in the number of pub refurbishments. Sales recently agreed include the former POD nightclub in Dublin 2, bought by the Kenny family of Clancourt for more than €4.5m, and the Ramble Inn, Killester, Dublin 5 which sold for about €550,000.

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