Tuesday 21 August 2018

Dublin bucks decline in European commercial property market deals

An artist's impression of the proposed 'Project Waterfront' scheme in Dublin's Docklands. Joint agents Savills and Cushman & Wakefield are guiding a price of €120m for the 4.6 acre site
An artist's impression of the proposed 'Project Waterfront' scheme in Dublin's Docklands. Joint agents Savills and Cushman & Wakefield are guiding a price of €120m for the 4.6 acre site
Ronald Quinlan

Ronald Quinlan

The rapid growth of the Dublin's Private Rented Sector (PRS) helped Ireland's commercial property market to buck the slowdown in transactions recorded across Europe in the first half of this year.

That's according to the latest report on European investment activity by real estate data firm, Real Capital Analytics (RCA).

While the report shows transactions with a total value of €109.8bn were completed across Europe in the six months to the end of June, the figure represents a 19pc decline on that recorded in the same period last year. High prices were among the factors that led investors to scale back their direct property acquisitions, RCA says.

According to its research, no sector escaped the slowdown, which affected 14 of Europe's 20 most active national markets. Sovereign wealth funds accounted for 0.2pc of Europe's total investment volumes in the first half, compared with a 4.5pc share for the whole of 2017.

That negative trend didn't extend to here however, with RCA reporting that transaction volumes in the Irish market grew substantially in the first half from a year earlier, following a surge in the purchase of rental apartment blocks in Dublin.

The largest of these PRS deals was AXA IM Real Assets' €161m purchase of The Grange and four acres of adjacent development land in Stillorgan, through its private rental sector (PRS) joint venture with Kennedy Wilson.

Other major PRS transactions in the first half of this year included Irish Life's acquisition of 262 apartments from Park Developments at Fernbank, Churchtown, Dublin 14 for €138.5m; Carysfort Capital's deal to buy the 120-unit Six Hanover Quay development from Cairns for €101m and IRES Reit's acquisition of the 128 apartment Hampton Wood scheme in Finglas, Dublin 11 for €40m.

The Netherlands meanwhile was Europe's fourth most active market in the six-month period to the end of June, according to RCA, with €9.8bn of transactions, a 17pc increase from the same period in 2017. A major driver of activity in the Dutch market was the residential rental sector.

This follows rules introduced in July 2015 that oblige housing associations to focus on lower-income social housing, prompting their withdrawal from the free-market rental sector. A housing shortage and a booming home sales market have attracted investors to the sector.

Other active European markets included the Portuguese capital, Lisbon, which jumped to 13th place from 53rd in 2017 as a result of some larger deals, including Blackstone's portfolio sale of a retail park and two shopping centres to Immochan for a total of more than €400m.

Europe's two most-active markets, the UK and Germany, recorded declines in investment volumes of 11pc and 31pc respectively in the first half. The pair accounted for 48pc of total investment activity in Europe.

Commenting on the overall performance of the European commercial property market, Mr Leahy said: "These are the weakest investment levels by sovereign wealth funds since 2010 and they were not alone. RCA's data for the first half show that most major sources of capital were less active and US-headquartered investors as a group were net-sellers. Our indicators show that pricing in the core Western European markets is well above the previous peak, reached in 2007."

With RCA's research indicating that some €33bn in deals are pending completion across Europe, the second highest pipeline of potential deals it has recorded, Mr Leahy said he expects to see an improvement in the performance of the European market.

He said: "We should see an improvement in the second half of this year, although it's very unlikely that we shall see a repeat of the record final quarter of last year.

"Real estate continues to appeal to generalist investors, who are looking for income-producing assets. Property is expensive in core markets in historical terms, however, so investors will have to focus on adding value through asset management or targeting markets and sectors where rental growth prospects are good."

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