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News Release

Dublin

Believe it or not, the problem at the moment for investors is scarcity of investment opportunity, not scarcity of money

By John Moran, Managing Director, Jones Lang LaSalle (Ireland)


Despite the events of recent days, and all the economic and financial uncertainty associated with that, I welcome certain developments – in particular the arrival of the IMF, which is forcing the Government to make the fiscal cuts it should have made three years ago.
 
I also welcome aspects of the National Recovery Plan – in particular the focus on improving Ireland’s cost competitiveness and attracting foreign investment.  I am, however, reserving judgment on specific property-related aspects of the Plan, where further clarification is needed on the changes proposed for Capital Gains Tax and stamp duty.
In terms of other milestones in 2010, I would single out Finance Minister Brian Lenihan’s decision in September to hasten the movement of loans into NAMA – a positive development which will help to crystallise the total losses of the banks, and which has resulted in facilitating greater transparency in the current state of the Irish property market. This will in turn increase international investors and rating bodies’ confidence that Ireland will recover faster than some of its European counterparts.
 
At the time of writing, the overall 2010 commercial property market investment trend is proving better than expected, and is likely to top €650 million – assuming two significant deals are completed by end December. However, even if those deals do not conclude, we are already 43% ahead of 2009 volumes. While positive, these volumes are still a lot lower than the €1 billion plus annual average turnover we enjoyed during the boom years. 
 
Sector trends
Elsewhere, an examination of some of the main developments in individual commercial property sectors shows some surprising results.
 
In the Dublin office lettings sector, activity levels improved steadily throughout 2010, with space leased now likely to show an increase of 50% over 2009.
 
In the retail sector, I believe we have nearly reached the bottom of the market for high street property and I don’t expect prime retail high street rents to fall much lower than their current levels.  In recent months, several major retailers have entered the market and are reportedly trading well.
 
2011 – the year of real market activity in Ireland
2011 should be the year when we see a significant increase in transactional activity across all sectors of the investment market in Ireland, especially in the area of NAMA and non NAMA-related bank workouts.  In addition to sales of prime assets in both Ireland and the UK – which are being disposed of to facilitate debt reduction by borrowers who are working with NAMA – I expect to see quite a significant amount of distressed asset sales by people who have yet to go under. While the assets of this latter group will be of differing quality, sales are likely to encompass all commercial property sectors. Another new trend I expect to emerge is that of distressed loan activity involving investors trying to buy out existing bank loans.
 
My best guess at the time of writing is that 2011 commercial property market activity will total between €500 and €600 million. Typical of deals that might happen in 2011, and in which Jones Lang LaSalle is involved, is the Green Property acquisition of the Royal Liver portfolio for €120 million. 
2011 will be the year when we see investment activity dominated by foreign players, including German investors buying prime real estate such as trophy assets in Grafton Street and good quality office buildings in Dublin’s Docklands. 
 
Foreign investors will be obliged to compete with Irish institutions which are already back in the Irish market and where, believe it or not, the main problem currently is scarcity of investment opportunity, not scarcity of money!  Since the summer, Jones Lang LaSalle has dealt with numerous enquiries from UK and US private equity funds which are interested in investing in the distressed property area. While all of these funds have money specifically earmarked for investment in Ireland only, some are actively considering investments in a combination of Irish and UK assets.  Oaktree Capital’s potential acquisition of McInerney Homes is a case in point: not everyone is seeking to use Ireland as a base to get access to UK assets.
As was the situation throughout 2010, I expect 2011 will see very heavy activity in under €5 million investment levels, with continuing strong demand for good quality assets.   I also believe we will also see a return to the market of some of the Irish commercial property market players, such as Green Property, which didn’t get burned during the boom and will therefore be in a position to take advantage of investment opportunities in 2011.
 
Whither values in 2011?
As most people know, values have declined 60% from peak to trough, and the expectation for 2011 is that value declines should stabilise. However, that prediction must be viewed against the most uncertain economic backdrop Ireland has ever witnessed.