John McCartney
Director & Head of Research, BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233

Irish investment turnover reached just under €700 million during the third quarter of the year, representing an increase of 63% relative to Q2. This brings total investment for the first nine months of the year to just over €1.8 billion, down 40% on the same period in 2019, however it is worth noting that 2019 was an outlier due to the large number of high-value portfolio sales transacted. Still, the investment market has, unsurprisingly, experienced continued instability in recent months due primarily to the practicalities surrounding inspections and carrying out technical due diligence due to travel restrictions which have hindered investment activity.

PRS and prime offices continue to dominate

Supply shortages and rising investor demand, along with a rise in the amount of people renting for various reasons, have led to a significant rise in the number of apartments being constructed across the country. 3,552 apartments were delivered during 2019 representing an increase of 59% relative to 2018, with Dublin accounting for 2,607 of these apartment completions or 73% of the total. This momentum in apartment construction is showing no sign of abating with planning permission granted for 20,582 apartments across Ireland during 2019 representing an increase of 125% year-on-year.

For this reason, the private rented sector (PRS) has become more and more attractive to institutional investors looking to diversify portfolio returns and risk. This sector accounted for 67% of total turnover in Q3 2020, with a total of €470 million invested and 1,016 residential units traded. Year-to-date, the residential sector has accounted for 42% of turnover, up from 36% in 2019, with the majority of this relating to the forward purchase of houses and apartments for rental across Dublin. The largest transaction in this sector and largest so far this year was the €195 million sale of 368 apartments at Cosgrave Group’s Cheevers Court and Haliday House apartment blocks in Dun Laoghaire, to DWS. DWS also acquired the Prestige Portfolio of 317 residential units (houses and apartments) across four separate developments during Q3. DWS have been increasingly active in the Irish market in recent years, investing more than €770 million in Irish commercial real estate in the past two years alone.

The office sector saw €216 million invested across 8 transactions during Q3, bringing the total investment year-to-date to more than €841 million. Prime office assets have attracted significant interest from international investors, indicating their confidence in the Irish commercial property market and the longer-term trajectory of the Dublin office market and Ireland’s economy overall. Henderson Park sold two assets this quarter which formed part of the Green REIT portfolio it acquired late last year; 2 Burlington Road and 30-33 Molesworth Street. Well-located core properties such as these represent a secure investment in the current climate, particularly in this low interest rate environment, while Ireland represents strong relative value in comparison to other European cities.

There were no investment transactions in the industrial & logistics sector this quarter, more so due to a lack of opportunities than a lack of interest. This sector was one of the big winners during the lockdown, with significant growth in activity in the pharmaceutical, food and distribution sectors driving occupier and investor demand. Rents have been rising strongly due to limited supply, however a resurgence in speculative development should provide new investment opportunities in the near term.

Overseas investors still active despite travel restrictions

Overseas investors continue to invest heavily in Irish real estate, accounting for 73% of turnover so far this year with the majority of this total (79%) attributable to European investors – mainly funds from France and Germany. This is despite the challenges posed by the pandemic, particularly in relation to changing travel and quarantine rules. The planned introduction of rapid testing in airports and a move to align Ireland with the EU in terms of COVID-19 travel restrictions should improve the situation.
Virtual viewings and other online tools have allowed overseas investors to progress deals throughout the summer months and we expect that this will be a feature of the market even once the pandemic has passed.

Outlook

In periods of uncertainty, real estate can provide a secure and stable, long-term income return for investors. This is particularly true when compared with other asset classes such as equities (which are volatile) and bonds (which are low or negative yielding), hence the strong increase in capital being redirected towards alternative assets such as real estate in recent years. While total turnover for the year is unlikely to come close to last year’s record €7.3 billion, there was €1.8 billion worth of property assets on the market moving into Q4 with just under a quarter of this at sale agreed stage. This leads us to believe that total turnover for the year will be broadly in line with the previous 10-year average of €2.2 billion, if not slightly above this level, which is positive considering the turbulent year this has been.

John McCartney
Director & Head of Research, BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233