Supply a concern as demand rises for investments

With the Irish commercial property investment market rapidly bouncing back following a significant fall in values, John Moran, the managing director of Jones Lang LaSalle, has complained that the slowness in bringing on new investments is now a key issue and means they are not meeting the current level of demand.

He said the mainly overseas investors were focusing not only on loan sale portfolios but on direct assets as well as a mixture of loans and assets. “We have identified over €6 billion of investor demand with about 80 per cent of it from overseas investors seeking to place capital in Ireland.

“A number of international players are establishing platforms in Ireland, indicating they are not just here for the short term.”

Moran said supply was expected to increase over the course of 2013, especially through the IBRC liquidation process.

He said that of the €415 million of investments on the market at the end of March, €215 million (52 per cent) was already under offer or sale agreed. “Assuming that an adequate supply of investments come to the market over the next nine months, total investment volumes for 2013 could exceed €1 billion.”

Investment sales in the first three months of the year exceeded €340 million compared to only €17 million in the same quarter in 2012.

In another report on the investment market, Jacqueline Fitzpatrick of Savills described as a “positive change” the fact that a number of Irish funds were looking to acquire again. This, she said, would bring renewed confidence to the market.

An analysis of the turnover figures for the first quarter showed that private Irish investors and local funds acquired €165.6 million of the investments sold, equating to 46 per cent of overall turnover.

American investors were the next largest group, buying €91 million of investments, or 27 per cent of those available. Germany was the next biggest group, paying €40 million for investments which equated to a 11 per cent market share, she said.

Price growth
Aoife Brennan recalled in a Lisney report this week that in 2012, an IPD study on capital values showed that all properties fell by 6.5 per cent in 2012. However in the opening three months of this year, some price growth had emerged in the office market and there were early signs that prime retail was following suit.

She said that in the office sector it was difficult to make direct yield comparisons between investments given the extreme fall in rents in a relatively short period of time.

However, other fundamentals such as rates per sq metre, did point towards an improvement in prices paid. Good quality office investments were typically selling for between €4,800 and €6,000 per sq m.

There was one notable exception in the first quarter when Temple Chambers on Burlington Road sold for €7,350 per sq m, marking a new high for this cycle.

Ms Brennan said there was some threat to pricing, particularly for secondary assets, from the continued sale of loan books. The assets backing the loan books were a potential source of supply and given that new owners of these portfolios were buying them at significant discounts, they were in a position to sell them on at competitive rates, something which the originating lender could not do.