Nama cut UK property exposure ahead of Brexit

The National Asset Management Agency cushioned itself from a potential UK commercial property market wobble in the run-up to Brexit. Asset sales in the past six months helped cut the agency's exposure to the now-shaky market to below €1.5 billion.

Nama had €2.1 billion of UK exposure, accounting for a fifth of its remaining portfolio, at the end of last year. More than three-quarters of its UK assets were based in London.

“The residual UK portfolio is now less than €1.5 billion, having stood at more than €12 billion when Nama acquired its loans,” a spokesman for the State-owned bad bank said. “The UK portfolio is not seen as significantly vulnerable to market moves from here.”

The value of the UK assets would also have been impacted by a 16 per cent drop in sterling against the euro in the past six months.

A large portion of Nama’s remaining UK commercial property assets are linked to residential developments that are close to completion, he said. “These would be seen as low-risk as they have already been pre-sold to buyers,” he said.

Concerns

There had been concerns about the outlook for the UK commercial real-estate market before voters decided to quit the EU. However, with analysts predicting London office values will plunge by up to 20 per cent within three years of the country leaving the block, a slew of asset managers have pulled down the shutters on withdraws from UK property funds in recent days as they struggled to cope with investors demanding their money back.

Aviva Investors, M&G Investments and Standard Life Investments are among fund managers to temporarily suspend trading in such funds.

Irish banks also have exposure to the UK commercial real-estate market. Bank of Ireland had a €5.2 billion UK property and construction loan book and AIB had €3.4 billion of such loans at the end of last year, according to their annual reports.

"While Brexit has cast a pall of uncertainty over the UK commercial property sector, we have no concerns – at least from a fundamental perspective – on the office market here," according to Philip O'Sullivan, an economist with Investec in Dublin.

“The opening position for the Dublin office market is one of wafer-thin vacancy rates, with the grade-A vacancy rate in the key Dublin 2 and 4 postcodes at the end of the first quarter was just 1.5 per cent.”

While cranes have recently returned to the Dublin skyline following the crash, the planned average annual additional new space in the capital until 2020 is less than annual demand in the past five years, he said.

Job creation

IDA Ireland

said this week it had a strong pipeline of foreign direct investment and job creation, with the agency known to be courting international banks who might move business out of London capital as a result of Brexit.

Dublin-listed real-estate investment trusts Green Reit and Hibernia Reit have fallen between 1.8 per cent and 3.2 per cent since the UK vote, compared to a 13.7 per cent slump by the broader Iseq index of Irish shares.

Suzie Nolan, a senior manager in the investment division at Friends First, said the firm's €360 million Irish commercial property is continuing to experience "strong" investment inflows since the UK vote, even though she said it is too soon to assess the long-term impact on the Irish market.

Inflows so far this year have averaged between €8 million to €10 million for the fund, which delivered a 6.63 per cent return in the first half. That compares to between €4 million and €6 million going into the fund in the second half of 2015, she said.

“Some are arguing Brexit is going to be good for Irish commercial real-estate as companies relocate to Dublin from the UK, but that could take years to happen,” said Ms Nolan, adding that others argue that the industrial property market may be impacted if exporters are affected by a negative post-Brexit trade deal with the EU.