Central London, in contrast, was ranked as the most liquid real estate market globally on the eve of the Brexit referendum vote in June 2016 – but has since slipped to 10th place at the end of last year, according to RCA’s Capital Liquidity Scores report.
New York’s Manhattan commercial real estate market has maintained its post-crisis level of liquidity and remains the most liquid market in the world.
RCA’s Capital Liquidity Scores are based on several metrics including:
- the volume and number of unique buyers in a market;
- the percentage of institutional capital;
- how much of the global pool of cross-border capital the market accounts for; and
- how much comes from the world’s largest property investors.
Dublin’s real estate market has benefitted from the growth of the global technology, media and telecoms sector and is home to many of the world’s most recognisable tech companies, such as Facebook and Google.
Demand from such prestigious occupiers has driven take-up of office space and the subsequent employment boom has also boosted the Dublin residential market, where prices are up 55% in the last five years. Both trends are visible in the property investment figures and the record high RCA liquidity score.
Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains: “Dublin’s real estate investment market is one of the great recovery success stories of the post-crisis European property market cycle. The market has moved from being debt-driven and dominated by local market players before 2008, to a recognised international institutional investment destination where pension funds and other investors are comfortable in placing their equity in offices, private rented residential and other property sectors.
“As prices have risen and yields have fallen, RCA’s liquidity benchmark showed Dublin’s score climbed to a record high at the end of 2018. However, if the dramatic turnaround means liquidity has improved significantly, it also makes the Irish capital look the most volatile global market covered by the research, with the widest range in scores of any market covered. This presents itself as a risk to investors, should liquidity evaporate again in the manner it did during the last downturn.”
Liquidity, a critical gauge of investing risk, is a key determinant of pricing in direct property markets. Accurately measuring liquidity in direct property markets has previously proved to be a challenge for investment managers, compared with real estate equities, where real-time pricing and market-making is constantly available in deep and liquid global stock markets.
The need for a benchmark metric that captures liquidity risk has being given added importance by the EU’s Alternative Investment Fund Management Directive (AIFMD), which stipulates that alternative investments funds, such as real estate, must provide a description of a fund’s liquidity.
RCA’s Leahy added: “Therein lies the challenge: if you cannot measure it, you cannot manage it.”