As Cantor Fitzgerald Ireland launches its latest commercial property opportunity, raising funds to purchase Blackwater Retail Park, Conor McKeon, Head of Corporate Finance answers some key questions in relation to the project.
Can you give us a brief outline of this project?
Cantor Fitzgerald and Lexeme Properties are delighted to be bringing a new alternative investment opportunity to market this month in Blackwater Retail Park, located just outside Navan town centre. We have been working on this project for the past number of months and believe it is an attractive opportunity that will provide an annual distribution from an ungeared property investment and which also has the potential to deliver a capital upside through the implementation of an asset management strategy over the investment hold period.
The property will be acquired by a Qualifying Investor Alternative Investment Fund (“QIAIF”) and per the business plan expects to pay a distribution 6% per annum to investors. The distribution will be payable from the net rent role after deduction of costs associated with the QIAIF. The QIAIF is a gross roll up structure and the tax attributable to the annual distribution will be 41% for individuals, 25% for corporates and 0% for tax exempt vehicles such as pensions and ARF’s.
What are the recent trends you have seen in the Irish real estate investment market?
The Irish economy continues to perform well, growing 6.7% in 2018. Despite the slowdown in global markets and the uncertainty that surrounds Brexit, the headline GDP rate is forecast to grow by 4.9% in 2019. Coupled with this we have seen unemployment levels fall from a long term average rate of circa 10% to the current rate of 5.4% in 2018, and this rate has continued to decline in 2019.
The growth in the domestic economy in recent years has been linked with growth experienced in investment, employment and consumer confidence. Increases in employment and the general trends in consumer spending are positive for the property market with commentators predicting the economy will continue to grow driven by exports, with more solid support from the domestic sector.
Year to date the total real estate investment market transaction level is just over €2.9 billion (€4.24 billion including Green REIT), across 118 deals. Following on from the trend in 2018, the office sector is the most dominant asset class comprising of approximately 27% of transactions. The retail sector has also been active in the investment market, accounting for approximately 11% of reported transactions.
The increase in stamp duty from 6% to 7.5% in the recent budget is disappointing, particularity considering the increase introduced in the 2018 budget. There is an opinion that this is a consistent and continuous trend resulting from the involvement of international investment funds participating in the direct acquisition of Irish real estate.
What are your views on the retail sector and the impact of e-commerce?
E-commerce and online shopping have changed the behaviour of both retailers and consumers. The convenience provided to consumers has proved attractive across the retail sector. It is clear that traditional bricks and mortar retailers must embrace e-commerce and adopt it to their model. Online shopping whilst growing, accounts for 11% of total retail sales value in Ireland.
Bulky goods do not lend themselves to the online delivery model, and the preference of consumers is to see and touch these products. There is also an element of “must have now” involved in DIY materials for example.
A trend that we have seen in the bulky goods sector is the evolution of the “click and collect” model, whereby consumers may view and purchase bulky goods online and then travel to the destination to collect.
What are your views on the sub sector of Retail Warehousing?
Retail parks in Ireland have performed well in recent years. Ireland’s top 3 retail parks in Carrickmines, Blanchardstown and Airside are enjoying 100% occupancy and the MSCI (IPD) rental series as at June 2019 shows an increase of 6.5% year on year in rental growth in the retail warehousing sector. We believe this trend will continue over the coming years as current rental rates are some way off levels that will support the development of new retail parks. We therefore do not envisage a supply of new stock (other than user specific) coming onstream until such time as rental levels improve significantly.
Why do you think Retail Warehousing is a good investment opportunity today?
We believe retail warehousing is a strong investment opportunity as it is a sub sector of the retail market that continues to experience rental growth. It is an asset class that can be acquired at levels that offer value in the underlying asset from the perspective of generating an income profile but also at levels that are below the current replacement value of the property. In addition, the nature of the goods that are typically sold in retail parks tend to be more “necessity type” items such as home furnishings, white goods and DIY materials, as opposed to more “luxury type” items that are typically associated with high street retail.
What are the characteristics of Navan town that underpin a strong performing retail park?
Navan town has two specific characteristics on this front, population growth rate and a significant level of new home construction. Recognised as a Dublin commuter town, Navan is the fifth largest town in Ireland (after Swords, Dundalk, Drogheda and Bray). It has seen its population grow from circa 24,000 to in excess of 31,000, per the 2016 census, and there are currently in excess of 600 new homes under construction with zoning for a further 1,500 houses under the local development plan. The growth rate of the Navan population together with the levels of new house building and favourable demographics in my opinion make it an attractive location for a retail park.
To find out more about this investment opportunity please visit https://cantorfitzgerald.ie/private-clients/latest-products/ or phone 01 633 3633 to speak with a Portfolio Manager or Account Executive.
Conor McKeon is Head of Corporate Finance with Cantor Fitzgerald Ireland Corporate Finance Ltd.
Warning: This is a high risk investment. Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. You may get back less than you invest.