Damien McCaffrey
Director - Investment BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233

The investment market is in for a bumpy ride until year end, with limited transactions expected in the short term.  Q1 started robustly, with Irish investment for Q1 2020 up c. 9% YoY, and 2019 being the benchmark year in terms of investment volume records.

However Q2 and the subsequent quarters will likely present both an uncertain and challenging time. Still, there is light, as investment strategies and international capital is confirmed.  Dublin has already benefitted from some notable transactions; the acquisition of Bishop’s Square by GLL for €180m, the purchase of Blackthorn House in Sandyford by Corum, Dalata’s sale and leaseback of the Clayton Hotel Charlemont for €65m to Deka, and the Rathgar Road Collection sale to LRC.

As Ireland was affected marginally later than other European countries, similar to the UK, we are behind the recovery curve of the continent, as their development and investment supply line attempts to get back to normal.  Yet it is positive to note that investor demand for Irish Real Estate remains buoyant.  Large European investors continue to be committed to the maturity of our market, while domestic investors will potentially use the temporary travel restrictions for overseas investors to their advantage, as they attempt to make deals in a less competitive environment.

Opportunistic Investors
Investors are generally taking a wait-and-see approach until uncertainty is reduced, with an expected rush for product expected later in the year and into 2021.

The Covid-19 global pandemic will attract opportunistic investors across various asset classes for Irish real estate.  In the current climate “cash is king”, and this aligns with long term strategies to secure prime product to reap the rewards.  Deals progressing will involve a substantial level of equity, as debt financing becomes more challenging.

The global pandemic has created a repositioning requirement for many assets/portfolios, as investors consider a shift in asset class appeal.

Social distancing rules have almost overnight transformed the world of work, which begs the question for an investor – will this have an effect on occupier take-up?

We believe flexible working practices will become more normalised, and the importance of the physical office as a place of collaboration and community will remain.  Office space requirements and layouts are likely to continue to evolve, to support changing work practices for the benefit of both employers and employees alike.

The retail sector, already undergoing structural shift to coexist with ecommerce, is experiencing another sudden change, due to Covid-19.  We do not know yet if these changes will be long term. There will certainly be a shift in people’s needs and behaviours, short-term, and it may take some time for brands and retailers to respond.  

In retailing, flexibility is key, and we expect dominant retailers with strong omni-channel routes to succeed and grow.  They may also use the opportunity to improve their High Street / shopping centre positions by acquiring space from those that fail.

Covid-19 will ultimately accelerate technology and e-commerce, with drone delivery and autonomous driving likely to now come sooner than expected.  The repositioning and evolution of retail will impact on the last mile of logistics, as it continues to evolve, with logistics companies embracing the “hub-and-spoke” model.  

The logistics sector is most certainly benefitting from increased pressure on supply chains, as sales of food and online consumer goods have surged.

Future Proofed Strategies
The global pandemic has further strengthened and accelerated the roll-out of ESG strategies (Environment, Social, Governance).   Investors are motivated to look after staff and occupiers of their portfolios and estates.  Investor demand for Lean and Green architecturally designed buildings across asset classes, from offices to residential, is further escalating.  Investors are seeking to future-proof and ‘greenify’ long term assets.

It remains uncertain how long the economic dip will continue, with emphasis on the word ‘dip’.  Real Estate is likely to come back better than before, with a strong term commitment expected from tenants, when the right locations and assets are secured.

As we are expected to be in a low interest rate environment for some time to come, core defensive assets remain in demand. There will be a ‘flight to quality’, with non-prime locations impacted. However this presents an opportunity for investors to seek advice on repositioning their portfolios successfully. The environment and market we are currently experiencing requires investors and their advisors to be creative, to reach agreements, and to act as a positive stimulus for progress.

The impacts of Covid-19 will hopefully be short term and considered a ‘dip’ rather than an ongoing crisis. At BNP Paribas Real Estate we remain cautiously optimistic for a rebound in activity in the latter half of 2020, moving into 2021, provided the pandemic can be contained. 

This unexpected dip may well help the real estate market in the long term.  The relative value of property, as an asset class, should endure, as long as the spread between the risk free rate (i.e. Government bonds) and prime yields remain unchallenged in this benign interest rate environment.

Many would say this is an advantageous time for cash-rich real estate investors, with numerous projected opportunities right across the real estate spectrum.

Damien McCaffrey
Director - Investment BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233