€1.2bn Invested in Ireland’s Private Rented Sector Last Year

€3.0bn was invested in Irish property in 2020 – just ahead of the ten-year average of €2.9bn, according to the latest Savills Ireland Investment Market in Minutes.

Key findings from the Savills report include:

• Private Rental Sector (PRS) remained in high demand in Q4 2020, with deals worth €533m transacting bringing full-year expenditure to just under €1.2bn. This brought the PRS’s share of the investment market for 2020 to 39% – its highest-ever share and reflective of the defensive characteristics of this sector
• The office sector accounted for 41% of total turnover.
• Private equity investors and institutional investors were the dominant buyer types in 2020, making up 72% of total flows over the year.

John Ring, Director of Research at Savills Ireland said“In the aftermath of the Global Financial Crisis, it was the uncertainty regarding the sustainability of Ireland’s government debt profile that resulted in commercial property yields spiking and prices falling. While continued monetary support from the European Central Bank means these issues are unlikely to come to the fore in the next year or two, the pandemic could bring some countries’ debt sustainability into question once again at some future point.

As a result, global real estate investors will place even more importance on the macroeconomic stability of the country when deciding where to invest their money in 2021. In this context, Ireland’s relative economic stability during the pandemic period should help it attract further investment  this year.”

Private Rented Sector

Savills report that several noteworthy PRS transactions took place during Q4:

• The largest of which was the off-market sale of PRS assets worth €140m
• The sale of Blackwood Square on Dublin’s northside by Cosgrave Property Group to Round Hill Capital/QuadReal for €123.5m.
• Looking at the full-year, DWS made the two largest transactions of the year, namely Haliday House & Cheevers Court in South Dublin for €195.0m and the Prestige Portfolio in North Dublin for €145.0m, both of which transacted in Q3

The sector’s appeal to investors is driven by Ireland’s high population growth (relative to the rest of the EU) and low vacancy rates. Rental growth has moderated and the Q3 2020 RTB index reported private rental growth of 0.9% y/y in Dublin.

Office

Over €365m worth of Office assets transacted during Q4, bringing the total turnover for the office sector to just over €1.2bn in 2020. Two of the largest office transactions took place in Q4 2020: Amundi bought 28 Fitzwilliam for €177.5m from the ESB while Deka bought Baggot Plaza from Kennedy Wilson for €141m.

Domhnaill O’Sullivan, Investment Director at Savills Ireland said“Significantly, four of the top five transactions occurred after Q1 when the pandemic had already reached Ireland, and all were acquired by European buyers. This activity reflects that Dublin offices continue to offer attractive yields at a European level, but also the continued confidence that institutional buyers have in the office market more generally”.

Investment by buyer type

According to the Savills data, private equity investors and institutional investors were the dominant buyer types in 2020, making up 72% of total flows over the year.

Outlook

The Savills report outlines several key characteristics of Ireland’s investment market in 2021:

• Buildings without green credentials will struggle to attract capital from institutional portfolios, which will lead to a widening in the pricing spread between new and secondary buildings, compared to what we have been used to historically.
• There is a wall of money seeking to deploy in the office sector for the right income streams, specifically green buildings, with more than 10-years of A rated income remaining, will see yields contract to 3.5% in 2021.
• Capital will flow to developers who have strong balance sheets, have a track record in dealing with institutional investors and are attuned to their reporting requirements
• High-quality assets and income streams will continue to attract debt at competitive terms. As well as office assets with strong WAULTs, we will some of the most competitive debt terms being offered in the PRS and social housing sectors.
• Global real estate investors will place even importance on the macro stability and fiscal sustainability of the sovereign when deciding on capital allocations in 2021. Ireland’s relative stability during the pandemic period should help it attract further global capital flows which will put downward pressure on prime yields in 2021.

Mr. O’Sullivan spoke of the future of Ireland’s investment market into 2021:

“In an era of continued ultra-low interest rates, real estate is likely to retain its relative attractiveness as an asset class. With some investors believing that inflation risk is only going to increase through 2021, real assets such as property offer a good hedge against inflation while offering predicable cash flows with a generous yield spread over Government bonds.

Ireland is well placed to attract real estate capital that will be deployed on a pan European basis this year, due to its robust relative economic performance through the pandemic.

Given the fact that foreign buyers account for the majority of the investment flow, the market outlook for 2021 will be challenged by the practicalities of selling internationally. With a large spike in cases in early 2021, the Government has put the country into a full lockdown and these restrictions on mobility will dampen market activity in the first quarter of 2021. As efforts to inoculate the population progress at home and abroad, the freeing up of movement will allow for easier access to the Irish market for cross-border investors and be supportive of increased investment volumes”.

Read the full report here: https://www.savills.ie/pdf/ireland-investment-mim-q4-2020.pdf