Almost €800m was invested in the Irish property market in Q3 2021 – 25pc higher than a typical Q3 over the long-term average, according to new data from Savills.
Savills said this brought total year-to-date investment volumes in Irish real estate to €3.5bn, representing the highest volumes for the period on record and double the volumes seen in the first three quarters of 2020, according to the latest data from property advisor.
“Conditions in the investment market seem to have returned to relative normalcy as restrictions have been reduced throughout the year,” explained Brendan Delaney, divisional director of Investments at Savills Ireland.
“We see opportunities arising for investors on some ‘mega deals’ and select newer stock with ESG credentials coming to the market which will demonstrate more competitive pricing”
“2020 was defined by two lost quarters with travel restrictions hampering the ability of foreign investors to physically come to Ireland, while in-person viewings also faced serious disruption throughout the year.
“We are now seeing a resumption of the strong levels of activity present before the pandemic with several large deals that are close to signing set to drive a strong Q4. Based on our analysis we expect to see year-end totals of between €4.75bn and €5.25bn in 2021, the second strongest year this cycle.”
According to Savills, investor appetite was strong across the board, but the multi-family sector continues to out-perform the rest of the market with €414m worth of multi-family assets trading which accounted for 52pc of investment volumes in the quarter.
In total, multi-family assets with a value of €1.9bn have traded this year giving the sector a 54pc market share.
“The sector has accounted for a growing share of the investment market in recent years driven by strong growth in the PRS market and has been resilient to the pandemic to the point of benefitting from it, due to its growing perception as a defensive asset class,” Delaney explained.
“Once again, the private rented sector continues to play a vital role in unlocking new supply, which is evident by the majority of residential units being forward purchased. This is providing a healthy investment base by giving certainty for developers, without this, it is highly unlikely that current levels of construction would be happening.”
Delaney said all eyes are on the retail sector which accounted for €107m this quarter, 14pc of the total volume.
“This is the first time since Q1 2019 that the sector has accounted for more than 10pc of total volumes.
“Indeed, several deals almost signed that would have dramatically shifted this figure. Furthermore, from The Parks Collection sale which recently came to the market at a guide price of €78m representing a net initial yield of approx. 8.2pc, we have seen a strong depth of demand with various bids received both for individual lots and the entire portfolio. Extrapolating from this process it would appear there was close to €500m worth of capital interested in these Irish retail assets.”
Mega deals ahoy
Sales across several sub-sectors demonstrate the shift in perceptions of retail assets. The acquisition of Nutgrove Retail Park by German fund AM Alpha for excess €66m is the first major retail park to trade in Dublin since the sale of The Park Carrickmines in Q4 2018.
Meanwhile the sale of 26/27 Grafton Street to Deka is a clear indication that institutional funds with a longer-term focus have started to view Irish Highstreet retail as an attractive asset class once again.
The third largest deal of the quarter in the sector was the regional sale of Bridgewater Shopping Centre, Arklow which also demonstrates that demand for retail assets is spread across a variety of asset classes with some further €150m worth of retail assets now sale agreed.”
“Investment in the office sector during Q3 was less than €140m. This has typically been for smaller lot sizes than we have become accustomed to, with individual deal sizes of sub €30m and for more secondary grade stock.
“We expect this to change approaching year end as the sector begins to recover from the impact of the pandemic, with office developments reaching completion and lease-up being achieved we will see a pick-up in investment volumes in the sector.
“We see opportunities arising for investors on some ‘mega deals’ and select newer stock with ESG (environmental social governance) credentials coming to the market which will demonstrate more competitive pricing.
“While the private rented sector retained its relatively large share of the market this quarter we would expect it to ebb in the final quarter as with a broad spectrum of assets set to transact in the final quarter of the year,” Delaney forecast.