Friday 20 April 2018

Irish investors put €207m into global real estate in 2017

London remains a popular choice for Irish investors, notwithstanding the decrease in the level of overseas investment in 2017
London remains a popular choice for Irish investors, notwithstanding the decrease in the level of overseas investment in 2017

Donal Buckley

Irish investors are still devoting hundreds of millions of euro in overseas commercial property.

According to research by Cushman & Wakefield, more than $254.7m (€207m) was invested abroad by Irish investors last year.

Among the areas targeted were the London Metropolitan area and Birmingham city areas in the UK; Berlin-Brandenburg and Rhine-Ruhr in Germany; and Boston Metropolitan area in the USA.

Retail properties were their favourites, accounting for 37pc of the spend, followed by offices with 37pc, and hotels with 16pc. In contrast with the latest global trends, industrial deals accounted for only 5pc.

In terms of types of investors, 35pc of the Irish share of the market was accounted for by developer and owner/operator purchasers, followed by investment managers (24pc); real estate operating companies (17pc); and equity funds (15pc), with the remainder split between financial companies and corporates.

But the level of overseas investment in 2017 reflected a 31pc drop on the 2016 figures, when almost $378m (€307m) worth of overseas deals were done by Irish investors. That drop also meant that Irish investors fell from being ranked 36th in the world in terms of cross-border investment to being ranked 40th.

The survey, known as the Global Investment Atlas 2018, also showed that Ireland has slipped from 10th position to 22nd in terms of the top 40 cross-border investment targets.

Siobhan Corcoran, senior economist at the firm's research department in Dublin, attributes the drops to technical and other factors.

"Those figures are not just direct investment, but also include development sites," she explains. "The change in ranks are a little different due to revisions in the data.

The differences in rank are based on the change in transaction volumes between 2016 and 2017."

Cross-border investment into Ireland fell 64pc from over $6.26bn (€5bn) in 2016 to $2.2bn (€1.8bn) last year.

"While the drop is considerable, it should be noted that 2016 volumes were significantly boosted by a small number of large deals, namely the sales of Blanchardstown Shopping Centre for €950m, Liffey Valley Shopping Centre for €630m, and the One Spencer Dock office development for €240m, and therefore the ranking of 10 was artificially high. It is important to note that the data in this report relates to total value," Ms Corcoran says.

"Our own analysis of the market in 2017 suggests that smaller lot sizes were a key feature of the year. Approximately 209 deals occurred compared with 218 in 2016, reinforcing the continued health of the present market," she adds.

Europe was widely acknowledged to have experienced its healthiest economic performance in a decade. The European investment market grew by 8.3pc last year, the third strongest year on record. While all areas experienced improving volumes, Southern Europe led the pack, with transactions up by 19.2pc as economic improvements and reforms brightened the outlook.

Asian capital into the EMEA region almost doubled as it grew by 95pc on the year. Nevertheless, North American investors were the strongest global players in the EMEA region overall. Despite predictions to the contrary, the UK was the most-targeted market, with overall volumes closing the year up 3.9pc, which was greater than Germany.

London, Berlin and four other German cities were included on the list of top 10 EMEA cities targeted by investors.

The report shows Asian investors were the major driving force behind the record levels of global real estate investment in 2017, with money from the region accounting for more than half of all global capital deployed and 46pc of all cross-border activity.

The report points out that with the range of sources of capital within Asia still increasing, this is likely to signal a period of sustained dominance.

Despite the outperformance of the US economy, investment activity in North America declined last year, with a fall of 6.9pc overall as both global and domestic buyers drew back.

The Global Atlas shows that In terms of sector trends, the industrial segment underwent the strongest growth, with a 43pc growth in volumes, thanks to online retailers and delivery companies needing logistics space to accommodate deliveries to online shoppers.

Indeed, a separate Cushman & Wakefield report shows that Dublin's logistics property market is one of the most underpriced markets in Europe.

The firm's latest European Fair Value Index says "Logistics remains the most (investment) attractive sector, with 39pc of the markets classified as 'underpriced', and only two markets as 'fully priced'."

The most 'underpriced' European markets in Q4 2017 were Moscow (retail and office), Budapest (retail and logistics), and Dublin (logistics) - experiencing the highest medium term rental growth forecast and further yield compression expectations in 2018.

That places Dublin logistics as one of only five markets in one of only three European cities which offer such good value to investors.

Now logistics, or 'sheds' as they are sometimes called in the trade, may not offer the trophy appeal of offices or hotels, but they are increasing their appeal to investors.

This is also reflected in a CBRE global survey which shows that both industrial and residential sectors are generating stronger appeal for investors than the traditional trophy assets of retail.

CBRE's global 'Investor Intentions Survey' shows that the industrial sector is regarded as the preferred asset class by 32.7pc of the respondents from across the world.

"This reaffirms the status of Industrial as an institutional asset class and shows the confidence investors have in the fundamentals and structural growth," the survey says.

Office ranks second at 26.4pc, "but continues to be a popular asset class and investors in office properties indicated an intention to seek markets with strong economic fundamentals for rental growth and established markets with high liquidity, whereas for industrial, the attractive risk return profile of the market was investors' most important driver," the survey says.

While it may not be a surprise to many Irish buy-to-let investors, it is also encouraging at a time of a shortage of residential rental properties in Ireland that global investors are targeting increased amounts of funds towards that sector, including the student accommodation market.

CBRE's global survey shows that residential has recorded the steepest rise in popularity compared to 2017 and is the preferred asset class for 22pc of the respondents.

"Investors indicated the attractive risk-return profile and strong fundamentals driving rental growth as main motivations for investing in residential," it says.

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