The right moves: EU turmoil bring new risks
With turmoil in the eurozone and a threatened Brexit, stock markets, currency markets and all asset classes are affected.
But what are the implications for property investors in Ireland and in European markets? BNP Paribas Real Estate are ranked third in the European market by Property EU for investment deals over €20m, so I visited BNP Paribas Real Estate Ireland to hear their views on European markets.
BNP Paribas Real Estate is the only agency in Ireland that is owned by a bank, which must give them good insights into the financial world. Their managing director, Patrick Curran is a veteran of the Irish property market and leads a team of 40 involved in commercial agency. We were joined for our discussion by their newly recruited head of research, economist Joan Henry.
All were agreed that the turmoil in the euro is not affecting either the occupier or investment markets in Ireland, with approximately €1.7bn of property investments transacted in the first half of the year. That said, the Irish market is not a normal one and such was the collapse in values, their subsequent recovery, the Nama sell-off and the hordes of new buyers, it was felt that some purchasers are discounting any risk of further economic or financial problems in their desire to get into the Irish market.
Nonetheless, Mr Curran pointed out that the changing market over the last decade means that wider, yet more tailored expertise, in assessing properties and risk, is a big advantage. "It's no longer just a pure property market-it's a property and finance market" he said. Whilst investors here are "pricing in" any further external risk, the level of due diligence being carried out by investors has reached new heights. BNP Paribas Real Estate was recently engaged on an IFSC acquisition where the client, an international investor, insisted on having three different real estate advisers involved. One agent undertook the acquisition, another carried out independent due diligence and another provided an independent valuation. In some cases a fourth independent real estate adviser is then mandated for the property management function.
Risks to the European economy generally are being more closely considered by larger investors in key markets such as France and Germany. Patrick Curran said that "for international investors, Europe continues to offer reasonable value in comparison to Nth. America and the Far East. Ireland features very positively for most investors given there is typically an initial pick-up of 50-100 basis points on larger European cities and meaningful growth potential."
During the boom Irish investors bought hundreds of properties in Europe and those that bought in the mainstream markets such as London, France and Germany fared best in the downturn. Whilst some institutional investors such as Irish Life have remained active in Europe there are signs that smaller private investors and syndicates are returning to buying also. This is where Mr Curran advises that it is crucial to retain the advice of a local expert.
Patrick Curran told the story of taking an Irish client to Paris, who was focused on buying the most prime retail property on the Champs Elysee. BNP Paribas Real Estate's man in Paris gently enquired which part of which side of the Champs Elysee the investor would like to buy on, as there are big differences in values. He advised that in fact there are several other prime retail streets worthy of consideration and the investor ended up happily buying an office investment on Rue de Marignan through the the agents' local office.
Ms Henry pointed out that Irish property players' risk assessment is changing significantly as a result the Alternative Investment Fund Management Directive, which is now effective across Europe. This particularly affects property funds and REITS which must monitor and assess a wide range of potential risks to their portfolios on an ongoing basis. The objective is to track potential systemic risks to the values of funds, to prevent the crash in values experienced in the last downturn.
As long as we have international investors scouring the globe for returns, the international estate agency brands will always be busy advising on local and international risks. Perhaps now is the perfect time to be buying a commercial investment in Athens?