VIDEO: Some of the top names in the property business converged at the prestigious Royal College of Surgeons in Ireland as Estates Gazette hosted its first Dublin Question Time.
Ireland was hit hard in the downturn, but the country is making a strong comeback and the prognosis is positive, judging by the disposition of the 200 people in attendance. Job prospects are strong and rental growth continues. Investment activity has ?proved hardier than anywhere else in the eurozone and Ireland may well outperform this year and next.
Question Time, held on 22 May, drew together a panel of industry heavyweights to test the theory.
Call for domestic funds
Irish real estate will continue ?to attract strong inflows of foreign investment in the mid- to long term, but it needs a more diverse pool of investors in future, having been dominated by private equity buyers over the past two ?years, the panellists told an attentive audience.
Investment from European pension schemes would be desirable in the current “jumble sale” of Irish property, said Pat Gunne, chief executive of Green REIT Ventures.
“What we want to see now is European pension schemes investing, as this is longer-term money,” he said. “Private equity investors are only looking at the short term. Also, institutions tend to buy with less debt, which is healthy.”
Gunne added: “Most private equity will say it’s in for five, seven-plus years, but ultimately the sooner you get out, the better. If you can make your profits at an earlier stage, that’s what a lot of private equity capital is about.”
Ireland saw a huge uptick of foreign investment into property in 2013, which pushed overall transactions past the €2bn (£1.6bn) mark – the highest level since 2006.
Paul McDonnell, head of Bank of Ireland’s property finance group, said there was still plenty of interest from foreign buyers and he credited foreign investment for launching Ireland’s recovery.
“The first thing it did was recapitalise the market when there were no transactions and no capital in 2009, 2010 and into 2011,” he said.
“They probably had a plan that would see them getting a return in five years’ time, but in two years they got to their target, so you can’t really blame them for taking their profit at that stage and moving on.”
However, McDonnell agreed that the market also needed more domestic investment.
Loans on the horizon
Panellists were optimistic about the return of bank debt for commercial property, which had been difficult to secure in the years following the property and banking crash. But McDonnell said the Bank of Ireland would not lend on speculative developments. “We are reviewing our development policies at the moment, and the door is open to talk about development loans,” he said. “But we will only lend on a project if it’s prelet.”
John McCartney, director of research at Savills, called for more transparency on lending terms and property data.
“For an investor looking into the Dublin office market, it has got to be confusing when you read four or five different vacancy rates for the central business district, and that derives from the fact that we have all drawn the red line on the map in a different way,” he said. “From time to time we try to harmonise, but we’ve all got our own systems set up.”
Partnering with Nama
Irish bad bank Nama is likely to announce joint ventures on development projects in Dublin Docklands and residential schemes in the capital “imminently”, said the agency’s head of asset management, Mary Birmingham.
Nama began inviting submissions for jv proposals from international and domestic firms in March this year, and has so far received 120 expressions of interest, according to official statements.
Birmingham said: “As to the when, the answer is really when viable opportunities arise, which is something that’s more likely to happen now in the shorter term maybe than in previous times.”
The mixed-use strategic development zone scheme in Dublin Docklands, a jv between Nama, Kennedy-Wilson and Oaktree, was approved last week and will deliver 2,500 homes.
Further jv opportunities are likely to be residential sites, said Birmingham, adding that the latest deal should be a ?catalyst for more “strategic ?sites in the Docklands areas and some particular Dublin residential schemes”.
Beyond Dublin
There are clear signs that recovery in Ireland’s regions has caught up with the capital, McCartney told the audience.
Although regional GDP data was dated, employment growth points to recovery, he said, with 3.3% recorded in cities outside Dublin last year, compared with 2.8% in Dublin.
This could be attributed to sectors growing in preparation for the lifting of milk quotas in April 2014.
“We are seeing a huge rise in agricultural employment, and one assumes that, as we go through the next development cycle, construction jobs will eventually begin to catch up and that will have a proportionately bigger effect ?in the regions than in Dublin,” he said.
McDonnell was similarly positive about activity in the regions, saying investors that initially came to Dublin were now looking outside the city.
“As prices get higher, they will look for relative value in other places,” he said. The level of activity so far was just a “trickle”, added McDonnell, but he was feeling “confident”.
Gunne said the market should rein in any excitement about growth, and although there were many good-news stories, “our balance sheet is still absolutely whacked”.
The future
Ireland is in a “Goldilocks” situation, with supply tight, rates low and demand high, said Gunne, but the unusual property climate made it hard to predict the future.
“We’ve got no supply, strong take-up, five-year swaps at 2.5%, a pile of money trying to get into the country and we’ve got guys trying to get out on refi, so it’s a weird situation,” said Gunne. “Where it’s going to be in seven or eight years, I genuinely haven’t a clue.”
McCartney suggested Dublin was entering a new financed office cycle.
He also predicted a steadier recovery in the residential market over the next decade, with more sustainable prices.
“Cycles are driven by the construction lag in commercial property, but in residential you don’t have that because it’s easier to build out houses quickly,” he said.
Birmingham said she expected that, in 10 years’ time, Nama will have achieved its objective of acquiring – and resolving – bad debt.
“If I could make one prediction, it is probably that I will be out of a job,” she said.
Panellists
Mary Birmingham, head of asset management, Nama
Paul McDonnell, head of property finance group, Bank of Ireland
John McCartney, director of research, Savills
Pat Gunne, managing director, Green REIT
Chaired by Damian Wild, editor, Estates Gazette
? To listen to a podcast: http://directory.libsyn.com/episode/index/id/2852043
