Outlook on The Property Sector
Aidan Gavin
Aidan Gavin

Aidan Gavin is Managing Director of Cushman & Wakefield and has over 20 years’ experience in property investment and development consultancy. Most recently he has been advising a number of equity houses and private investors on the investment of substantial funds into Ireland. Cantor Fitzgerald has been running a series of regional Real Estate Investment Seminars in recent months, where Cushman & Wakefield have been sharing their valuable insights on the investment market. We sat down with Aidan Gavin to ask some key market questions.

Is the vacant site levy having an impact on bringing more zoned sites to market?
We have yet to see evidence of such sites coming to the market in any volume due to the levy. The arduous planning system and building height restrictions in city centre locations have been cited by many as greater impediments to the delivery of development than land hoarding. While the recently published Sustainable Urban Housing: Design Standards for New Apartments guidelines should improve the delivery of residential units in urban areas, the fast track planning system has yet to demonstrate significantly greater expedience in the planning process.

Is there evidence of funds which bought into sites / portfolios now looking to offload?
As several of the larger funds continue to acquire and develop higher quality, prime sites of significant scale, they have displayed a willingness to dispose of ancillary or non-core assets acquired in portfolios or in the early stages of their acquisition programme.

Will the emergence of “Build to Rent” schemes change the landscape of the traditional Irish private rental sector?
Yes, but likely to be limited to city locations with a concentration on Dublin initially. In our view, institutional landlords account for approx. 5% (12,000 – 15,000 units) of the Irish PRS market and this number is increasing year on year. We believe the institutionally held residential stock could rise to 25% / 30% over the medium term, a view that appears to be supported by the government given their recent classification of BTR as a dedicated asset class, however this will be heavily dependent on our ability as a nation to increase this production. Under the new apartment development guidelines, the viability of this sector has been enhanced and we are likely to see a lot more purpose-built product delivered into a market where institutional appetite is very strong.

Is there still an active market for individuals purchasing residential investment properties?
Yes, however our data shows that for every domestic investor acquiring a stand-alone investment property, two investors are currently selling out of the market. This is largely down to the unfavourable tax environment that currently exists in respect of private residential landlords. With such an unfavourable environment for the domestic investor, it is easy to understand why some are placing their investment funds into REITs which are currently providing stronger net returns without any need to take on operation or management risks personally.

Given the appreciation in commercial property values in recent years, does it remain an attractive investment opportunity?
Compared to other investment classes, without question and Ireland’s fundamentals in terms of growth are amongst the best in Europe with no signs of over inflation. The Dublin & Cork office markets in particular are probably the most robust of all sectors and whilst inevitably the Dublin cycle moves from opportunistic to value-add the risk remains low.

Are Dublin office rental levels reaching their peak?
Not quite although we are seeing slower, more steady increases as opposed to the more dramatic increases seen in the 2014–2016 period. The increases seen then were as much a rebalancing of the market as anything else. We have now returned to a more normal market with balanced conditions.

Is Brexit having an impact on demand for Dublin office space?
Not really. We have seen a few occupiers expand their footprint in Dublin such as JP Morgan and Barclays but these, as a percentage of overall take-up, have been quite small. Dublin has seen the arrival of several UK law firms such as Pinsent Mason and Simmons & Simmons but these have tended to be small operations with none taking more than 10 – 15,000 sq. ft.

Do the greater investment opportunities lie in the Dublin market, or in the less crowded regional geographies?
Dublin still represents a very favourable market for the larger institutional investors who are taking a long-term view on income, suburban Dublin represents a very good opportunity, particularly South Dublin, where there is very strong tenant demand and still a good rental growth story.
If one is looking for a good opportunistic return, regional cities are a very exciting opportunity; current yield gap is between 150 to 250 basis points for similar type investments.

What is the balance between investor interest from Ireland and from overseas?
For the last number of years Ireland has been dominated by international investors, either directly or indirectly through different property funds or asset management platforms. In 2017 for the first time in many years, domestic investors surpassed international, accounting for 52% of transactions. Going forward we anticipate this balance to remain the same which bodes well for our property sector. Interesting year to date is that two of the three largest deals have been done with Asian capital, something that will continue throughout the year ahead.

What are the key areas to watch for in 2018?
Offices will continue to lead the way in 2018 in terms of volume, with forward funding of build-to-rent schemes getting most of the headlines. This is a relatively new sector for Ireland but something that is extremely sought after as national and international funds diversify their portfolios.

Finally what is your dream property investment?
Emotionally, I would say a villa on the beach in Bali sounds like a dream property. However in terms of a dream investment based on financial sounding, I am a strong believer in mixed-use schemes that incorporate a strong diversity of investment flows. Projects like the regeneration of St. James’s Gate by Diageo in my view provides an extremely strong investment case. Your capital is spread over office, retail, residential, leisure and cultural in what is one of the most exciting regeneration projects in Europe.

Please note this article is for information purposes only. The views expressed are those of the author and not Cantor Fitzgerald Ireland Limited (“CFIL”). CFIL has not contributed to this article in any way. It is not intended to and does not constitute personal recommendations/investment advice.

To read the full interview with Aidan Gavin, Managing Director of Cushman & Wakefield, click here to download our April Investment Journal.

To speak with a portfolio manager or account executive today, phone the Cantor Fitzgerald dealing desk on 01 633 3633.