Dublin’s property agents have a spring in their step. Confidence is back for the first time since Ireland’s property crash six years ago.
And that’s saying something. The Irish economy and property sector wasn’t just rocked by financial turmoil. It was decimated. In 2011 barely €100m (£84m) of commercial property was transacted in Ireland. But last year marked a turning point as the figure rocketed to €2bn.
And in January Frank Daly, chairman of Ireland’s bad bank, Nama, which was created in 2009 to rationalise €77bn of toxic property loans, told Irish state broadcaster RTE: “I think there is evidence that we have reached the bottom and are beginning to move off it.”
Data from IPD illustrates the extent of last year’s market comeback: Irish property returned 12.7% in 2013, compared with just 3.1% in 2012. A lot of this growth took place in the second half of the year – 2013’s total of 3.2% capital value growth happened from Q3 onwards. The boost in performance brings to an end 23 consecutive months of decline, and tells a very different story from 2012, when capital values fell by a whopping 6.4%.
“The turnaround has been very quick,” says Paul Eustace, partner at Dublin law firm Dillon Eustace. “What we are seeing in Dublin is the return of the property agent. They are busier than ever, and think it’s Christmas every day. Demand is returning, and there is now a shortage of high-quality office space on the market in Dublin.”
Even agents, usually known for their tendency to talk up the market, have been taken aback by market performance: “It’s not the recovery itself that has been a surprise, it’s the speed with which it has happened,” says Duncan Lister, director at Irish real estate group Lisney. “The changes in pricing since Q3 have been a lot sharper than we expected.”
So what factors are behind the resurgence in the Irish property market? And how has it happened so quickly?
Put these questions to almost any agent in Dublin and the answer will probably be three magic words: weight of money. This is an expression that has come to dominate thinking about the Irish real estate market over the past two years, and refers to cash-rich, usually North American investors such as Lone Star, Kennedy Wilson and Blackstone clamouring to spend their money.
These companies have been eager to snap up trophy assets, portfolios and loans with a view to capitalising on the Irish recovery. They are also willing to pay over the odds for the most desirable assets as competition heats up. Kennedy Wilson joined forces with new listed company Green REIT to buy mixed-use Dublin scheme Central Park for €310m – almost a fifth above the guide price of €250m – from Nama in January. Google and Blackstone split the spoils of Nama’s Platinum portfolio in January after paying ?€165m for the assets. The portfolio came to the market with an asking price of €120m at the end of last year.
Another factor behind this scramble for Irish property is that the property recovery in the US is already more advanced than in Europe, meaning that opportunities for capital value growth have already fed through in the home markets of the North American private equity giants.
But this trend of US investors descending on Ireland is also, in part, cultural.
“The Americans have always seen Ireland as a gateway to Europe,” says Lister. “We all speak English and our legal system and way of doing business is essentially ?Anglo-Saxon. Ireland feels a lot more familiar to investors looking for a recovery story than, say, Spain or Greece.”
But after this North American-led buying frenzy, what comes next? The natural progression is for the likes of Kennedy Wilson and Lone Star to begin selling on to local investors, says Lister. There are signs that this is already starting to happen – Hibernia REIT’s most recent acquisition, the €47m Century House, an 80,000 sq ft building in Dublin’s International Financial Services Centre, was bought from US-based Madison International Realty, which had owned it for less than a year.
“Over the coming year, we’re likely to see fewer exotic names and more home-grown companies buying up assets as the market moves into a new phase,” says one Dublin agent.
The emergence of Green REIT and Hibernia REIT, two new Irish heavy-hitters, over the course of the past year, has also bolstered confidence in Ireland. Green REIT floated on the Irish Stock Exchange at the end of last year, and has invested more than €200m in Irish real estate. Hibernia REIT listed on the Irish Stock Exchange in December and has already made its presence felt with two acquisitions totalling €114m.
The consensus among agents and private equity houses is that there is still room in the Irish market for another REIT, and that there could be more fund launches by domestic players in 2014. Just this week, two former Treasury Holding directors – John Bruder and Niall Kavanagh – announced plans to launch a new REIT to capitalise on international interest in Ireland.
Too much, too soon
Irish agents and US private equity buyers may be opening the champagne, but is this rapid recovery sustainable? Should the property world be worried by the speed at which the market has moved?
It will be difficult to gain any insights into the long-term health of the market until the private equity players which have dominated activity over the past two years begin to sell off their assets in earnest. Domestic investors are expected to furnish most of the demand for these properties, but will their purchasing power be strong enough to form a deep enough secondary market?
“Most of the activity in the commercial property market – and nearly all in the residential market – during the recent recovery has been equity fuelled,” claims Alan McQuaid, economist at Merrion Capital Group. “There isn’t really any debt available as the Irish banks are not lending, so the question is how much more equity capital is there out there? And will it dry up at some point?
“I don’t think that we are heading for another bubble and I believe we will see another year of strong performance,” he adds. “But there could be some bottlenecks in the market.”
The other factor that is set to shift in 2014 is the sector breakdown of market activity. Up until now, offices have dominated Irish property sales, accounting for around €780m of transactions in 2013. By contrast, only two major shopping centre transactions have taken place since 2007 – Aviva’s sale of its stake in the Liffey Valley shopping centre on the outskirts of Dublin to HSBC Alternative Investments for €250m in February, and Intu’s purchase of Sprucefield in Lisburn as part of a package from Westfield. However, there are signs that the balance is about to shift.
“Retail will be the story in 2014. The occupancy ?market has bottomed out in prime locations, and the conditions are now perfect for bringing some core assets to the market,” says John Moran, managing director of JLL Ireland.
Rumours abound among Dublin agents that Nama is readying several more retail portfolios for the market. CBRE’s Dublin office has also tipped retail as an area to watch out for in 2014, but warns activity is likely to be limited to prime shopping areas.
Agents are also on tenterhooks waiting for ?Nama and Ulster Bank to bring hotel portfolios to market. Nama currently controls around 10,500 hotel rooms, or 20% of Ireland’s total stock, and has raised about €160m from hotel and loan sales to date. According to CBRE, €140m of hotel-related deals are in the pipeline for 2014.
Activity in 2013 has demonstrated there is a resilient market for prime assets in Dublin. However, the real test of the market will come when Nama puts its plans to sell non-office and regional property portfolios into action. Speaking in January, Daly said that he expected the Irish property recovery was on the cusp of spreading outside of Dublin and into other cities, such as Cork, in 2014. The next chapter of the recovery will see this theory put to the test.
? Register for EG’s Dublin Question Time debate on 22 May at www.estatesgazette.com/questiontime.
Will the Celtic Tiger’s big property players return to the UK market?
Irish investors were synonymous with some of London’s most ambitious real estate development projects during the Celtic Tiger years, but have been largely absent from the market since the market crash of 2008.
But could this change as the Irish domestic market returns to form? As developers which have survived the onslaught of the property bust clear their debts, will they regain some of their notorious swagger and return to the UK market?
Johnny Ronan, founder of the collapsed property company Treasury Holdings and one of the most flamboyant characters of the boom years, appears to be doing just this.
He announced the launch of a new property company, Ronan Group Real Estate, last week.
Ronan is looking to guide investment back into riskier yet higher-returning development projects in the UK and Ireland, with a view to ploughing profits back into repaying his debts to Nama.
Ronan was a heavy investor into London at the zenith of the property boom, and is best known for his purchase of Battersea Power Station, SW8, in 2006 for £400m via his company Real Estate Opportunities. His ambitious plans to pour £5.5bn into the regeneration of the site came to an end in 2011 when REO went into administration.
In another story redolent of the boom years, mysterious Irish property developer Thomas Ryan announced plans in November last year to build a £850m residential tower in Canary Wharf. The 75-storey Hertsmere Tower will be the tallest residential block in Europe when completed. Ryan is understood to have bought the site for £100m.
However, little is known about the man behind the project, who has previously invested in companies ranging from property to hardware.
Could Ronan and Ryan’s bold moves signal the return of the Irish property developer to the London market?
Property agents in Ireland are sceptical.
“You won’t see many phoenix-from-the-ashes stories among the Irish developers that went bust during the crisis,” said one Dublin agent. “There will be some individuals with a track record, such as the Johnny Ronans of this world, who will re-emerge, but we will never go back to the glory days of the Irish investor-developer in London.
“The ones to watch out for are the developers who have maintained a foothold in London throughout the crisis,”
The most high-profile of these is Ballymore Developments, headed by property tycoon Sean Mulryan. Ballymore appears to be on a war footing, having announced plans in October last year for a £585m luxury residential development in Canning
Town, east London, with the blessing of London mayor Boris Johnson.
The Nama-controlled company was back in the black at the end of last year with a £5.4m profit for 2013, following a £376m loss in 2012, and Mulryan claims that Ballymore is on track to exit the bad bank’s control as early as 2015.
Glamorous (and risky) development projects aside, is there any sign of a return of the Irish institutional investor or private wealth investor in the UK?
Yes, says Fergus Keane, head of West End investment at DTZ – but don’t expect a deluge of money from across the Irish sea anytime soon. “We have seen some enquiries from private Irish investors in the London market, but only one or two,” he says. “London is looking very expensive at the moment, not just for the Irish but for everyone. The Dublin market is offering a lot more value.”
However, it is possible that this could change. “If Dublin prices continue to rise, then London could start to look more attractive by comparison,” Keane adds. “London property has always had a reputation among Irish investors as a wealth preserver, and that won’t be forgotten easily.”
While there are signs of a re-emergence of Irish investors in London, flows of money into the capital are unlikely to reach the levels seen during the height of the Celtic Tiger years.
Many of the main players in the market were wiped out by the crash, and those who remain will have a much harder time getting debt to fund their projects.
Nevertheless, the ambitious plans of some of the more colourful – and mysterious – investors and developers from Ireland have certainly captured the imagination of the property world.
