Investment deals off after bailout

A NUMBER of property investment sales due to have been completed before the end of 2010 either fell through or were pushed out to 2011 because of a sudden change in market sentiment following the IMF/ECB bailout.

The largest transaction to have been called off was the proposed sale of a € 120 million Dublin retail portfolio to Green Property Company and its American associate TPG Capital. The owner of the 19 properties, Royal Liver Assurance, is now expected to offer the portfolio for sale in smaller lots. Two other deals which did not close as expected before Christmas are still likely to be wrapped up in the coming weeks; several others are unlikely to be completed because of restricted bank funding.

Savills said the slowdown in economic activity that emerged in the third quarter of 2010 also weighed on sentiment and activity in the final months of the year. Nevertheless, the investment market had an overall turnover of € 270 million in 2010 compared to € 140 million in the previous year. While the final three months of the year are usually the busiest, turnover in Q4 was the lowest at € 27 million compared to € 50 million in Q1, €79 million in Q2, and € 113 million in Q3.

The agency expects investment activity to be subdued in the first three months of this year because of the problems which surfaced in the run-up to Christmas. Joan Henry, head of research at Savills, said liquidity remained an issue in 2011 both in relation to the availability of cash and terms set by the banks. “All these factors are inter-linked and all need to improve to boost activity this year. However we do foresee a pick-up in sales later in 2011 as both Nama banks and non-Nama banks are expected to begin to sell assets.”

Retail investments accounted for 55 per cent of the overall turnover in 2010 while office investments reached 40 per cent of the total figure. A mere €11.5 million was spent on industrial investments over the entire 12 months. The agency said that while the number of deals more than doubled to 47, they reflected a correction in values in 2009/ 2010.

Michael Clarke of Savills investment division said that investment lot sizes were considerably smaller than in previous years. The average size of transactions during the year was in the region of €5.7 million This meant that a number of Irish private investors were able to make purchases as this kind of non-prime stock did not appeal to the institutions.

Henry said the amount of investment stock now on the market was at its lowest level in almost a decade. Even though deals were being completed, new properties were not coming on the market to replace them. There are now 40 per cent fewer investments available than at the end of March last.

Clarke said there continued to be a demand from international investors for prime property investments at yields of 7 to 7.5 per cent in the office sector, 6.5 per cent in retail and over 9 per cent in the industrial sector.