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News Release

Dublin

Market poised for a return to liquidity in 2011

John Moran, Managing Director, Jones Lang LaSalle (Ireland) argues that patience now will pay strong dividends in the coming year.


The Irish commercial property investment market has shown tentative signs of recovery during the first nine months of the year. Some €200 million worth of transactions were completed during the period – this represents an increase of 51% on the same period in 2009.
 
Of course, this increase is measured against a very low base but the market is at least going in the right direction which is long overdue. Also very welcome is the strong level of overseas interest in the Irish commercial property market. Recent examples of this were the purchase of AIB Grafton Street by a German fund and the CityWest deal done by UK-based private investor London Regional.
 
For the first time in a number of years there is a buying community for all types of commercial property assets in Ireland at the moment : buyers of trophy assets are coming from Germany and the UK; German and UK buyers as well as Irish domestic pensions funds are showing interest in good quality office buildings; there are significant amounts of US and UK capital willing to take out distressed loans and borrowers; while in the city centre land arena there are a number of UK property companies looking to get involved.
This is all very positive news but caution is needed if we are to benefit from the opportunities this interest should generate. Cautious because the recovery in the market is still fragile due to the domestic economic backdrop and because we are going to be very dependent on foreign investment to extricate ourselves from the trouble we find ourselves in at present.
 
Foreign money for Irish investments is available but it’s very fickle and very mobile. If those investors don’t believe they can do profitable business here they will go to Portugal or Spain or anywhere else where they believe they can make money.
 
An unusual feature of the Irish commercial property market at present is the fact that there is little or no product on the market despite high levels of distress and the economic downturn on the one hand and investor interest on the other. The main reason for this is NAMA. The vast majority of commercial property that is of interest to investors is either in NAMA or associated with it in some way. And NAMA is not yet in a position to start selling anything.
 
This is in no way a criticism of NAMA. The sheer volume of loans and associated assets which the agency have had to take on as well as overseeing the whole business planning process mean that it is simply not in a position to start selling, yet.
 
I firmly believe that product will start getting released onto the market early next year both by NAMA and the other banks such as Bank of Scotland Ireland.  There will be opportunities then for everyone and there should be a serious upsurge in the commercial property market in 2011.
But this depends to a large extent on continued interest from overseas investors and we must be careful to maintain that. At present, there is a risk that overseas investors could be put off by the activities of what might be termed over-enthusiastic market participants. There is anecdotal evidence of frustration being caused by properties being touted for sale when there is simply no market possibility of them being available.
 
It is very tempting for deal makers when faced with a buyer with money to spend, to identify an asset for them and then go about trying to put the deal together as quickly as possible. This is the way property markets work in normal circumstances. But these are by no means normal circumstances.  Today an approach to NAMA or any of the other banks for property assets will most likely be met with a polite acknowledgement – and no more - as they go through their business planning processes and finalise their asset disposal strategies.
 
We must not yield to this temptation. Now is the time to hold our collective nerve and sit tight. The opportunities will come early in 2011 and we must advise potential investors of this. Patience, like virtue, will have its own reward in the end.