It is vital that the market responds quickly, writes
MICHELE JACKSON
THE CURRENT demand for good commercial investments is not being met. Both supply and demand have changed considerably in the third quarter of this year, but, the volume of assets for sale has not kept pace with the considerable increase in active demand. The past three years have seen the majority of potential investors cautiously reviewing the Irish market and subsequently pricing risk into their offers. As a result, sellers with sales targets are becoming increasingly realistic on pricing. There is a real concern however that if the supply pipeline does not increase to meet demand, the resultant artificial level of yield compression will scare serious investors off Ireland.
To date, 2012’s commercial investment sales are approximately €300m, with the third quarter accounting for €125m of this. The estimated total supply of commercial investments for sale in the market is now at around €750m with approximately 20 per cent currently in legals.
Prime Dublin office investments are the headline focus for many investors and these tend to be the larger deals. However, demand is also very strong nationally for properties suited to their location and use, including supermarkets, retail units, bank branches, car parks, petrol stations and good residential investments.
The December 2011 Budget introduced a window where zero capital gains tax will be payable on property acquired before the end of 2013 and held for seven years. This attractive incentive is priced into investors’ analyses of their target returns and therefore has a positive impact on pricing. With less than 15 months remaining in this incentive, the market is anticipating demand remaining strong for this period.
Institutional investors are also looking at Ireland and as many of these overseas entities tend to follow more opportunistic investors into a new market, it is expected that demand from this sector will continue to increase.
Sales prices are currently exceeding expectations and turnover of asset sales completed should reach €500m in 2012 with residential/ multi-family units now becoming a very established investment sector. If existing demand is met in 2013, this volume of sales could increase to in excess of €1 billion.
Finally, the sentiment toward Ireland is now very favourable, and internationally we are no longer the “I” in PIGS. There is a real sense of positivity from Irish and overseas investors about Ireland, clearly supported by the volumes of demand. It is important the market responds to this to enable new equity to invest and present new ideas which will stimulate growth.
Michele Jackson is director of investments at DTZ Sherry FitzGerald
