More than €1.2 billion was invested in Irish commercial property during the final three months of last year, bringing total turnover for 2020 to €3.05 billion. While this is some way off the record €7.4 billion transacted in 2019, it is a solid year in the context of the ongoing COVID-19 pandemic and is above the ten-year average.
Core office and PRS assets have been most sought after, highlighting confidence in the long-term prospects for both Ireland’s economy and the Dublin office and residential markets. Despite the widespread adoption of remote working during the pandemic, prime office rents remained relatively stable throughout the year with rent collection for office investments anecdotally strong. Office mega-deals such as Bishop’s Square (€183m), Baggot Plaza (€141m) and Fitzwilliam 28 (€177.5m), all acquired by European investors, have underscored the continued appetite such assets attract with €1.2 billion invested in the sector in 2020. Similarly, chronic undersupply of housing in recent years has led to intense competition amongst Irish and overseas investors alike for PRS opportunities, with just under €1.3 billion invested in the residential sector across 30 deals.
Major surges in e-commerce and growth in the grocery and distribution sectors have resulted in record demand for logistics space. With the development of prime logistics space on a speculative only basis beginning in Ireland relatively recently, demand has outstripped supply leading to strong rental growth in recent years. Despite strong levels of interest, investment opportunities have remained low with the sector attracting a small proportion of total turnover each quarter. This changed in Q4 however, with news that Singaporean investor GIC had paid €200 million to acquire an Exeter Group-managed portfolio of more than 120,000 sq.m of logistics space across 30 assets from Morgan Stanley Investment Management in the final weeks of the year.
It is clear that the retail and hospitality sectors have been hardest hit by the pandemic, however the impact has been more severe in some sub-sectors than others. In contrast to the challenged high street and shopping centres, retail parks, supermarkets and neighbourhood centres have proven quite defensive with stable income streams and minimal supply chain disruption. This led to more than €138 million being invested in retail assets in 2020 with several neighbourhood centres and supermarkets among these.
Even with travel restrictions and other barriers imposed by the pandemic, it was encouraging to see more than €2 billion of capital invested by foreign investors during 2020 with PRS, Office and Logistics the predominant sectors of choice. An abundance of global liquidity has been met with volatile equity markets, low interest rates and a lack of yield elsewhere, making real estate more attractive on a relative value basis. The range of recent transactions gives a clear indication that foreign investors increasingly see Ireland as a stable, low-risk destination, something that ten years ago would have been impossible to even imagine. European investors in particular continue to seek out opportunities in Ireland; their funds are euro-denominated, which removes any risk with regard to currency fluctuations, there is no drag on returns from hedging costs and the prime yield in Dublin remains relatively attractive when compared with other European capital cities. In 2020 we saw several new entrants from countries like France and Luxembourg seeking opportunities in Dublin, having spent the early months of the COVID crisis educating themselves on the Irish market and refining their investment strategies.
As with most countries across Europe, Ireland continues to grapple with rising cases of COVID-19 and is in the middle of a third lockdown to deal with this. Unlike last year, however, buyers, sellers and agents alike are now very experienced in working and completing deals in the context of COVID, while the ongoing vaccine rollout means the end is now in sight. So, while 2020 is a year most would rather forget, the prospects for Ireland remain relatively strong and we enter 2021 with optimism for a quick recovery, with the real estate sector well poised to benefit from this.
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