Thursday 19 April 2018

Warning on longer-term yields from real estate

Yields are high in Irish market
Yields are high in Irish market

Paul Melia Environment Correspondent

Investors in Irish real estate are securing yields of almost 12pc with growth expected to continue over the near-term, albeit at a lower level.

Aberdeen Standard Investments said the outlook in Dublin is good for the next two years, but have urged investors to be cautious over the longer term given the cyclical nature of the market.

European real estate analyst Craig Wright told a media forum organised by Aberdeen that the fundamentals in the market were strong, and there was more liquidity in the system.

State bad bank Nama was playing an increasingly important role in development, he added.

"In terms of the one to two-year outlook, we favour Dublin. We see a positive performance from the core to the out of town market and it's doing particularly well," he said. "We would throw some caution on the longer term, given the cyclical market.

"The role Nama played in removing the bad loans has really helped to bring liquidity back. You're seeing Nama playing a more important role in development."

He said that yields were falling from a high of 40pc in 2014, which have since dropped to 26pc in 2015, 12.5pc in 2016 and 11.7pc to the second quarter of this year.

"That's shows while it's been a rapid cycle, the fundamentals are in the good place and you're perhaps seeing more capital growth."

Historically, Ireland is considered to be one of the most volatile markets, but across Europe there is a need for more investment in healthcare and retirement living, giving the ageing population.

Aberdeeen Standard Investments also say that as consumers move to online shopping, there will be less retail needed and more logistics.

Around 30pc of Irish companies retail through online platforms, compared with a European average of 18pc.

"Retail is still important but we need to adapt to change," he said. "Probably the benefactor will be logistics. Online is driving logistics close to consumers."

Three-year yields on Dublin office and high-street retail are expected to hit 4.5pc, with logistics at 6.2pc.

Irish Independent

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