Thursday 20 September 2018

Irish commercial property market vulnerable to fall - ECB president Mario Draghi

Mario Draghi (Brian Lawless/PA)
Mario Draghi (Brian Lawless/PA)

Gavin McLoughlin and Ronald Quinlan

ECB president Mario Draghi has warned that the Irish commercial property market is vulnerable to a fall amid "stretched" valuations.

He said that based on historical comparisons, the market was now vulnerable to a repricing.

Mr Draghi said the main driver of increased prices in the commercial property market, both here and abroad, had been investors looking for yield.

He said that in order to guard against a downturn the Central Bank here should look at introducing new lending caps that would apply to non-bank lenders who are giving out money for commercial real estate.

"The role of non-banks and cross-border financing is increasing," Mr Draghi said in response to questions from Sinn Fein MEP Matt Carthy.

"Given the rise in importance of non-bank and cross-border financing it's important to investigate whether new instruments, new macro-prudential instruments should be made available and also implemented for non-banks' commercial real estate exposures.

"They often are actually carrying out activities which are very much like banks," Mr Draghi said.

The sector here has seen an influx of capital from abroad after the market bottomed out during the crash, and with a low interest rate environment in Europe for the last number of years many investors have turned to new sectors to try and seek returns.

Earlier this week the property agent JLL raised its forecast for the level of investment in Irish property for 2018 from €2bn to just under €3bn following a particularly strong second quarter in which nearly €1bn worth of commercial real estate changed hands.

According to JLL, 35 transactions carrying a combined value of €955m took place in the three months to the end of June.

While that figure was only slightly more than the €933m invested in the first quarter of this year, it represents a 300pc increase on the equivalent period in 2017.

The largest transaction in the second quarter saw the off-market sale of a portfolio of Dublin office investments for €160m.

John Moran, CEO and head of investment at JLL, said: "Year-to-date volumes have now reached €1.8bn - more than twice the volumes transacted in the first half of 2017.

"In particular we have seen significant increase in high-value assets trading, with the average deal size for Q2 2018 at €27m. In Q2 2017, the average transaction size was €7m.

"In light of recent investment trends, JLL are now forecasting year-end volumes to be closer to €3bn."

Meanwhile, bosses at listed housebuilder Glenveagh Properties, including former Nama head of asset management John Mulcahy, are set for a windfall.

The company operates a private equity style founder share scheme which entitles scheme members to receive shares in the company if certain performance metrics are met.

The metrics for a period running from March 1 to June 30 have now been satisfied, meaning just under 19 million Glenveagh shares are to be distributed.

Mr Mulcahy is entitled to around €2.2m of shares (valued on yesterday's closing price), while CEO Justin Bickle and chief operating officer Stephen Garvey are each entitled to around €10m of shares.

Half of the shares are subject to a one-year lock up while the other half are subject to a two-year lock up.

Irish Independent

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