Foreign capital takes Ireland real estate investment to record highs

Large assets in Dublin continued to attract interest from around the world.

February 17, 2020

Ireland’s real estate is now increasingly in the hands of international investors after a record year for investment.

More than €7.2 billion was invested in Irish commercial and residential real estate last year, more than double the previous year and the highest year on record.

Accounting for a large proportion of the year’s record figure was UK property company Henderson Park Capital for €1.34 billion in August.

The deal is part of a continuing trend of international investors looking to large assets in Dublin’s real estate market, says Hannah Dwyer, research director for Ireland at JLL, with interest greatest for large office investments and well-located prime residential (mostly PRS), such as SW3 Capital and Tristan Capital Partners’ joint sale of 385 apartments to Avestus Capital Partners and Herbert Park.

“PRS has been popular, while, from an office investment perspective, there’s been a raft of big-ticket deals, with new, grade A assets proving popular among an increasingly wide range of investors,” says Dwyer.

International investors move in

Foreign capital accounted for almost two thirds of overall investment last year, and for office investment, they were attracted mainly by newly-developed office assets in central Dublin – as well as the city’s “Silicon Docks” reputation as a home for tech firms from Google and Facebook to LinkedIn and Airbnb.

While the UK’s departure from the European Union may have caused some firms to think twice about being based in London, a major cut in corporate tax by the Irish government as far back as 2003 has proven to be a major draw in the last 2 decades for international companies. In the past few years, demand for office space has been driven by firms who already have a presence in Dublin but are enjoying strong business performance and seeking more space.

Last year, Blackstone purchased the Cedar Portfolio, a portfolio of office buildings in Dublin, which traded for €530 million. In addition, German fund manager Union Investment paid around €197 million for 5 Hanover Quay in Dublin’s Docklands, its fifth asset in the city.

Last year also saw debut office deals from both South Korean and Singaporean investors. South Korea’s Hana Financial invested around €145 million in the Charlemont Place office building in central Dublin, while Singapore-headquartered real-estate investment trust Mapletree Investments ploughed €240 million into the Sorting Office, an ongoing scheme in the Dublin docklands.

Such deals could open the door to more Asian investors, Dwyer says.

“It’s often the case that a debut deal then leads to other fellow investors from the same base following them in,” she says.

Increased competition

Increased foreign capital into the market in 2020 will depend on opportunity in what is a notoriously tight market, says Dwyer.

For now, the assets traded have been predominantly core. But Dwyer says this year could see a move up the risk curve from investors keen to enter an office market increasingly popular with tech companies.

“It’s a comparably small market, but there is a solid supply of pipeline office space, so there are opportunities for investors to develop, forward fund, or refurbish properties,” Dwyer says.

Although yields have tightened in the last few years, Ireland, unlike many main European markets, is yet to see yields return to the previous peak.

“That means there are still multiple opportunities to generate value.”

Henderson Park’s attempts to rotate assets following its Green REIT transaction could offer inroads, with the firm reportedly looking to offload as much as €400 million of Dublin office assets.

“There’s an increasing number of investors asking about value-add opportunities,” says Dwyer. “That would bring Dublin more in line with the kind of real estate investment in value add and opportunistic assets we see globally.”

Indeed, it is the global trend of limited opportunities to invest and large volumes of unallocated capital that has brought Dublin up the wishlist of investors. With competition among investors remaining strong, new locations and asset types could also be brought into focus, Dwyer adds.

While new international investors dominated 2019, local Irish institutional and pension fund capital is not to be dismissed.

“As we enter 2020, the market is certainly more diverse than ever before,” she says. “That mix of investors is likely to continue as assets are traded in the coming months.”