€1.5bn invested in Irish property in Q2 2021

Investment in Irish property in the second quarter of 2021 is the second highest level on record and is 170pc ahead of the first half of 2020, according to Savills.

Strong investor appetite across the board led to €1.5bn being invested in the Irish property market in the second quarter, bringing total year-to-date 2021 investment volumes in Irish real estate to €2.7bn.

Property firm Savills said that this is the second highest level on record and 170pc ahead of the first half of 2020.

“The industrial sector has been relatively resilient to the effects of the pandemic and the occupier market is suffering from a dearth of modern stock and an exceptionally low vacancy rate”

The industrial sector was the stand-out performer of the quarter with €325m worth of industrial assets traded, giving the sector a 22pc market share and well ahead of the long-run average of 4pc.

With a tight vacancy rate of 1.3pc and strong occupational demand, investors are seeking exposure to the sector which has proved resilient during the pandemic.

Bricks and mortar

“The industrial sector has been relatively resilient to the effects of the pandemic and the occupier market is suffering from a dearth of modern stock and an exceptionally low vacancy rate,” said Brendan Delaney, divisional director of Investments at Savills.

“This has provided support for steady rental growth in the sector and investor demand has caused net initial yields to tighten from 4.75pc to 4.25pc over the past 12 months.

This imbalance of supply and demand looks set to continue for the foreseeable future with seven of the 14 buildings under construction already committed. In recent years investors have had limited opportunities in this sector due to a lack of suitable assets coming to the market.

“Looking ahead, the Core Industrial portfolio is expected to transact in the second half of the year with first-round bids in excess of the guide of €170m. If transacted, this would bring overall industrial investment volumes easily to its strongest year ever.”

Savills said an additional €757m was invested in private rented sector (PRS) assets this quarter, which brought the total year-to-date PRS investment volumes to €1.5bn – 25pc higher than full-year investment into the sector in 2020.

The market share of PRS fell slightly from 58pc in Q1 to 51pc in Q2 but still accounted for four of the five largest deals of the quarter. The role of the private rented sector in unlocking new supply is evident with 90pc of residential units being forward purchased compared to 10pc of transactions consisting of standing stock. Without a healthy investment base giving certainty for developers, it is highly unlikely that this construction would be happening.

A total of €311m was invested into office assets during the quarter. The major deals in the quarter were Deka’s €164m purchase of Block A, Riverside IV in Dublin 2 and Corum’s €60m purchase of One Navigation Square in Cork. Block B Liffey Valley also sold, trading for €18m and included life sciences tenants such as AstraZeneca and Abbot.

The life sciences sector is predicted to be one of the next big growth sectors of the global economy as we emerge from the pandemic, and Ireland’s strong reputation in this area gives it’s a great base from which to develop as a cluster of global importance.

“Investment in the office sector has been hampered by Covid-related interruptions to the construction pipeline and occupational market,” Delaney explained.

“As the year progresses and offices reach completion lease-up we would expect to see a pick-up in investment volumes in the sector. Therefore, while the PRS share of the market at the moment is relatively high, this will balance out as the year progresses with significant office and retail assets set to transact in the second-half of the year.”

By John Kennedy (john.kennedy3@boi.com)

Published: 2 July 2021