The year so far has been very good for commercial property sales and the forecasted €3.5bn total is within sight, writes Patrick Curran.
This year has been a historic one for the commercial property sector in Ireland. The second quarter saw the highest quarterly turnover ever in the Irish market with €2.1 billion transacted in the Irish commercial property market. The sector performed stronger than expected, was boosted by a single prime shopping centre sale and strong demand for prime offices.
Total turnover for 2016 reached €2.8bn at the end of June and if it reaches the forecasted €3.5bn for 2016, the 10 year average will have increased significantly to €1.7bn, compared to €1bn in 2013.
The five largest deals in this quarter made up a total of €1.47 billion, equating to 68% of the total turnover in Q2. These five deals made up 50% of the total for the first half of the year and were all transactions of prime opportunities in the Dublin market.
That said, 22% of total investor spend in the first half of 2016 was outside Dublin. Retail assets are attracting considerable interest, driven by the strength of consumer demand and the overall improvement in retail sales. Almost €420m of that 22% was retail investment.
The largest transaction outside Dublin was the purchase of Whitewater Shopping Centre in Kildare for a yield of 6.2%. German fund Deka purchased the centre.
The yield compares to the 4.2% achieved for the Blanchardstown Centre which was acquired by US firm Blackstone.
Location as well as occupier mix, the fact that The Blanchardstown Centre deal included two retail parks along with some adjoining lands with potential for expansion and the rental differential being achieved between the two assets are the drivers of the yield differential.
Q1 also saw the sale of another retail asset outside of Dublin — the Golden Island Shopping Centre in Athlone for €43.4m, achieving a yield of 6.8%.
Between them the two shopping centre deals, Whitewater and Golden Island, made up €223.5m or 54% of commercial property investment outside Dublin.
Trends in 2016 were similar to 2015, when almost €700m was invested in retail assets outside of Dublin in 2015. Three quarters of total investment spend in 2015 was in the Dublin market.
The 25% transacted outside Dublin was dominated by a number of nationwide retail portfolio sales. The sale of two retail portfolios which had a majority of properties located outside of Dublin, (Cornerstone and The National), made up almost 9% of turnover for the year as a whole (at just under €300m).
The sale of Blanchardstown to US property company Blackstone for €945m in Q2 2016 was the single largest commercial property asset ever traded in the Irish market.
Irish vendors sold just over €1bn of the total retail investment properties that transacted in Q2, while US, Irish UK and private investors were on the buy side of that €1bn.
Demand for retail assets is expected to remain strong for the rest of 2016.
Prime Dublin opportunities will command more investor attention but well performing assets outside the Dublin market with rental growth potential are set to remain of interest to investors given the performance of the economy.
© Irish Examiner Ltd. All rights reserved