Although the majority of the big-ticket commercial property investment transactions that complete in the Irish market each year occur in Dublin, Cork has actually accounted for an increasing proportion of investment activity over recent years.
Indeed, €636 million of investment transactions have been completed in Cork in the past 10 years, according to CBRE Research. The total spend, in reality, is actually higher as we only count transactions extending to more than €1 million in our analysis, and it also excludes assets sold as part of loan sales.
The majority of Commercial Real Estate (CRE) investment that has taken place in Cork in the last decade occurred in the post-recession era, with almost 90% of total investment spend in the Cork region in the past decade occurring since 2013 (see graph/main image).
The increase in CRE transactional activity in the last four-year period has been remarkable and mirrors similar trends in Dublin as NAMA and various financial institutions undertook significant deleveraging activity. The surge in investment activity in Cork occurred approximately two years after the upturn in activity in Dublin, as many investors who initially focused their attention on the capital began to look further afield to prime provincial markets where pricing was somewhat more competitive. Other investors acquired assets in Cork by virtue of having purchased national portfolios.
The majority of the investment sales completed in Cork in recent years have comprised retail and office properties. Indeed, 72% of the total number of investment transactions completed in the Cork region in the last decade comprised either retail or office properties.
Notable shopping centres that traded in recent years include Blackpool Shopping Centre which sold to Varde Partners in 2014 as part of a portfolio and currently back on the market quoting €117 million; Wilton Shopping Centre, which sold to Clarendon Properties/York Capital Partners for approximately €76 million in 2015 and Douglas Court Shopping Centre, which sold to Varde in late 2014 for €57 million. Douglas Village Shopping Centre also traded in recent years as part of a loan sale to Oaktree.
The most notable office transaction in Cork in recent years was the sale in 2015 of 1 Albert Quay, for €58 million, or €3,625 per sq. m. (€337 per sq. ft.). This transaction attracted an initial yield of 3.41% or 6.75% based on full occupancy. Green REIT purchased the Grade A office building from JCD and the prestigious building is now fully occupied.
In total, 24 retail investment transactions (with a value of more than €1 million) were completed in Cork in the last decade while some well-known shopping centres and retail parks also traded as part of loan sales or as part of mixed-use portfolios in the period. As is the case in Dublin and other investment centres, industrial investments only accounted for a small proportion of overall investment activity in Cork over the last decade, although several smaller industrial investments have traded for less than €1 million in Cork during the period.
A number of Cork hotels also traded as investments in the last few years, including Dalata’s purchase of the 192-bedroom Clarion Hotel from NAMA at €35.1 million in 2015 and the purchase of the 182-bedroom River Lee Hotel for €24.5 million in 2013. Dalata also acquired Maldron Shandon in 2016 for €8.1 million.
Another interesting trend is the emergence of residential investment transactions in Cork in recent years as multifamily residential investment became established as a sector in its own right – again mirroring a trend witnessed in Dublin from 2012 onwards.
2014 was the busiest year in terms of transactional activity, with 26 CRE investment transactions of more than €1 million having completed in Cork during that year – compared to 14 in 2015 and 9 in 2016. The market has seen several institutional grade investors purchasing assets over recent years including Green REIT plc, Irish Life and Clarendon which has added to (Source: CBRE Research, Q1 2017) Cork’s appeal amongst international investors. Other noteworthy investors who have acquired assets or loan portfolios in the Cork market in recent years include Varde, Blackstone, Kennedy Wilson and Davy.
According to our research, prime provincial office yields in the Irish market are currently in the order of 7.25%. However, prime office yields in Cork are trending approximately 100 basis points keener with strong appetite from investors for prime office buildings in Cork’s CBD. This differential is also witnessed in the high street retail sector with prime high street yields in Cork currently stable at approximately 6.0% compared to 6.75% for prime provincial high streets generally.
Similarly, prime industrial yields in Cork are currently in the order of approximately 8.0% which is at a significant premium to prime provincial industrial yields generally but significantly higher than the 5.5% prevailing for prime industrial investment opportunities in Dublin at present. We therefore expect to see continued strong demand for any premium investment product that is released for sale in the Cork region.
Recent investment sales in the Cork region include the sale of Merchant’s Quay Shopping Centre for €13.7 million; the sale of an office investment at 7 Eastgate Avenue in Little Island for more than €5 million and the off-market sale of Golden Discs a retail unit on Patrick Street in the city for c. €4 million. With several other transactions due to complete over the coming months, there is no doubt but that Cork investment spend in 2017 will be impressive and is on course to once again account for a sizeable proportion of the overall spend in the Irish market this year.
We also expect to see new sectors entering the lexicon with investors becoming increasingly focused on ‘alternative’ investment sectors including Build to Rent (BTR), Purpose Built Student Accommodation (PBSA) and Healthcare.
Brian Edwards is Managing Director of CBRE Cork’s new office