Ireland’s commercial property market upbeat despite pandemic
The commercial property sector in Ireland has proved resilient despite the pandemic, with numerous €100 million-plus deals completed – and there remain attractive opportunities for investment this year.
Looking at the CGI images of how the apartment block in Dún Laoghaire, County Dublin, will look, it is easy to see why asset management firm DWS paid €200 million for the development back in July 2020. [www.irishtimes.com/business/commercial-property/cosgraves-co mplete-200m-sale-of-south-dublin-apartments-1.4316923]
The plush complex, in a coastal suburb just 13 kilometres from Dublin city centre, is being built by the Cosgrave Property Group. The apartments DWS purchased are due to be completed in stages between April 2021 to January 2022. The two buildings, named Cheevers Court and Haliday House, will be five and seven storeys and comprise 368 apartments and penthouses.
This deal was DWS’s second at the development – in May 2019, the company, a subsidiary of Deutsche Bank, bought 214 apartments for €108 million.
The DWS purchase was the biggest Irish commercial property deal in 2020 and shows how attractive the country has become to overseas investors, despite the pandemic.
Furthermore, the asset management business was responsible for another of the top five biggest property deals of the year in Ireland when it spent €145 million on 317 residential units being developed by MKN Property Group in July. This comprises existing and new-build houses and apartments in four developments in the north Dublin suburbs.
Elsewhere, there were a number of other multi-million euro property deals signed in Ireland in 2020, including:
- Australian investment bank Macquarie Group and Patrizia AG splashed out €182 million to buy office development Bishop’s Square in Dublin from Hines. This deal was agreed prior to the pandemic but was signed off in April.
- Demonstrating faith in the Dublin office market, investment business Amundi Real Estate of France spent €170 million on the newly developed Fitzwilliam 28 development of offices in the centre of Dublin in November. Amundi took the chance to snap up the development after Morgan Stanley backed out of a deal during the initial stages of the pandemic.
- Showing how foreign investors can turn a good profit on Irish commercial property, US real estate business Kennedy Wilson bagged a healthy profit when it sold the redeveloped Baggot Plaza office development to Deka Immobilien, a German investment firm, for €141 million.
In all, investment in commercial property in Ireland in 2020 is reckoned to be worth more than €3 billion. While this is less than half the value of investments made in 2019, when a record €7.2 billion was invested, it nonetheless shows the resilience of commercial property in Ireland, particularly in the capital. [www.irishtimes.com/business/commercial-property/commercial-property-market-takes-severe-hit-from-covid-19-1.4396871]
In the first three months of 2020, the Irish commercial property sector was busy continuing the trend of 2019, but this ground to a halt at the end of March when the first lockdown was announced. However, when Irish lockdown conditions were eased, the market bounced back well – as the DWS deal demonstrates – only to be stymied once again in October by the second lockdown.
With tougher lockdown conditions announced in Ireland on December 30 and set to continue through the next few weeks and months, Tanaiste Leo Varadkar said the commercial property sector is likely to remain quiet in 2021 until restrictions are eased again.
Nevertheless, there is still cause for optimism. For instance, the pipeline of developments is strong in Dublin. There were some 500,000 square metres under construction at the end of September 2020, of which most is due to be delivered within the next 18 months, according to figures from commercial real estate company Cushman Wakefield [www.cushmanwakefield.com/en/ireland].
Construction work also recovered in the summer when lockdown restrictions were eased, and it is likely that once they are eased again that work will continue the throughput of developments.
In addition, the industrial and logistics sector showed resilience in 2020, with strong levels of activity recorded. This was underpinned by the rapid growth in ecommerce during 2020 due largely to the lockdown, as well as businesses planning for Brexit and expanding warehouses to cope with any delays at the border.
That said, what the medium to long-term effects of Covid-19 will be on the commercial property market remains to be seen. With several vaccines now either approved or in the final stages of being given the green light, an end is potentially in sight to the pandemic.
Nevertheless, in the office market there is some nervousness. One of the effects of the pandemic was to see a huge rise in people working from home. Surveys since have suggested that many employees have enjoyed remote working and would like to keep these arrangements once business has returned to something like normal.
But this does not mean there will be a ‘death of the office’ post-Covid. Many people still have an appetite to be office-based and many businesses still want a physical space. Consequently, analysts say there will be no wholesale move away from city locations any time soon.
Additionally, while many commercial property deals have been put on ice because of the pandemic, these deals may well be back on the table once it’s over, especially when the economy starts to recover again.
Elsewhere, retail has also been badly hit. With many non-essential businesses experiencing periods of closure during the past 10 months, they have been financially stretched and some may not be able to continue trading in the long-term.
This raises the prospect of distressed assets coming onto the market in the next year or so, which presents opportunities for investors to buy up good quality property at reduced prices. While these deals may not always contain the standard warranties a buyer might expect, and therefore there is an added element of risk, undertaking comprehensive due diligence prior to signing contracts would mitigate that risk as far as possible.
Why invest in commercial property in Ireland?
Coronavirus aside, there are many reasons to invest in Irish commercial property. Ireland’s commercial property sector is relatively small compared to the UK and some countries in the EU, but the market is reasonably priced – even in the capital there is not a vast premium to pay for offices, homes or other business premises. The market has also shown an upward trend during recent years and there are hopes this will return when the pandemic is over.
Irish property tends to have longer leases than its counterparts in Europe, which means rental yields are more secure.
If you are looking to invest in commercial property in Ireland, then it is crucial to get local, expert advice as the process can be complicated. If an investor does not complete an in-depth investigation of the opportunity, then the risk of the investment making a loss is increased.
There are numerous aspects that need to be considered and undertaken before signing off on an investment. For instance, full due diligence should be undertaken of all the legal contracts, including leases, boundaries, stamp duty and the like.
Investors should also get advice and carry out due diligence on the tax, capital gains tax and VAT implications of the deal. This includes analysing the cost of the investment, the potential rental yield – and the costs on the rental income – and what impact capital gains tax could have on the returns on the investment. Also, the potential impact of VAT on sales, letting etc needs to be explored.
Of course, structural surveys should also be conducted, investigating all aspects of the property, including water and heating systems. If any issues are raised in this, they will need to be resolved before contracts are signed.
In addition, advice should be sought on planning permission for the property, along with the planning policy in the local area and any restrictions that could be encountered such as preservation orders.
Advisors should include local experts who know the legal and accounting regime of Ireland, plus have experience in commercial property deals in the country. While the UK is close to Ireland and shares a language, the property and business landscape can be very different. But local advisors can ensure any potential pitfalls are avoided.