Describing 2015 as a remarkable year of performance, DTZ say that last year “was a record-breaking year for Cork property investment, following a bumper closing quarter.” A total of €136 million was invested in Cork’s commercial property during 2015, as investors and REITs looked outside of the capital for more competitive returns.
That €136m outturn for 2015 contrasts sharply with the previous high of €79.7 million recorded in 2014, notes DTZ.
The two largest investment purchases, totalling €93 million betwen them, practically face one another across Cork city’s River Lee, and are the €58m purchase by Green REIT of One Albert Quay from John Cleary Developments (final deal closing of the almost fully occupied new build is expected within days,) and the €35m acquisition of the Clarion Hotel by Dalata.
Late last month, Dalata also announced its further €40m acquisition of the leasehold interest on four hotels, including the Clarion Hotels in Cork and Limerick which will now be rebranded as Clayton Hotels, with upgrade works set to follow.
Domestic capital was the main driver of investment sales in Cork in 2015, accounting for 85% of the value of transactions. The €136m tally reported this week by DTZ does not include loan/portfolio sales, so the c €70m valuation put on the Wilton Shopping Centre as part of the Hazel Portfolio is not included, nor are the sales of the Shipton Group’s former shopping centres in Blackpool and Douglas Court.
A key trend in the Irish investment market in 2015 was the rise in the volume of investment sales outside of Dublin, driven by strengthening economic conditions, higher yielding opportunities (relative to Dublin) and positive rental growth: the share of spend outside of the capital increased to 18% in 2015, compared with just 5% in 2014, with the Cork investment market the strongest.
Peter O’Flynn, MD DTZ Sherry FitzGerald Cork said “2015 set a new high watermark for Cork commercial property investment, with turnover boosted by a number of high-profile deals, including the acquisition of One Albert Quay by Green REIT and the purchase of the Clarion Hotel by Dalata Hotel Group.”
As expected, offices were to the fore. While transaction activity rose across the majority of property sectors in Cork, it’s the office sector that continues to drive investment, and has been the most sought-after asset class among investors in 2015: figures show that the share of offices’ spend topped €72m in 2015, accounting for 53% of the overall activity, with One Albert Quay accounting for €58m of that (sources indicate 2016 will also see offices dominant: a €4m plus South Mall office buy with reversionary yield scope is currently in the final stage of legals.) According to the DTZ report, “domestic capital was the dominant source of investment in 2015, supported by REITs, institutions, and private Irish investor activity. Domestic investors accounted for approximately 85% of the value of investment flowing in during the year. The remainder was acquired by overseas investors, mainly comprising US and European capital. On the other hand, vendors remain a mix of private landlords, receivers and institutions.”
Office leasing activity in the Cork office market “was robust during 2015, with total take-up of at 22,100 sq m but strength of demand for office assets has seen yields contract over the past 12 months,” say DTZ. Prime office yields dropped from 7.25% in 2014 to 7% at the end December 2015, and further compression is forecast for 2016.
Second-strongest performing sector was hotels, accounting for 26% of overall spend while the share of retail investment grew to 14% during the year: a relatively new asset class in the Cork market, the multi-let sector, absorbed 6%, and mixed-use made up the the remaining 1% of activity.
Looking ahead, research associate director Siobhán Corcoran says: “2016 is set to be another positive year for the Cork investment market and a return to more normalised levels of transactional activity. While supply levels remain tight, we expect to see increased secondary trading from asset and loan portfolios purchased over the past two to three years.”