Ireland: international capital flows expected to sustain through 2019

International capital is expected to continue to flow into the maturing Irish real estate market, despite risks related a slowing global economy and Brexit impacts, according to Savills.

At a global level, all of the major monetary authorities are now in ‘wait and see’ mode and interest rate increases appear to be off the table for the immediate future. This should ensure an ongoing appetite for property assets, predicts Savills.

There has been a notable widening of the buyer pool in recent years; initially US money flowed-in, followed by core German investment, then by capital from a wider range of European countries. And now we are seeing Asian investors buying large-scale property assets in Ireland.

In the offices sector, prime yields in Dublin remain above the European average. At the same time rent expectations are underpinned by a tight occupier market and low vacancy rates. This has led to a weight of domestic and international money chasing Dublin offices.

John McCartney, director of research, at Savills Ireland, explains:

“Looking ahead, although the global economy is slowing and Brexit poses a particular risk, Ireland’s deepening integration with the global economy means that occupier demand for office space in Dublin will continue growing. However, the development pipeline remains well-contained and, if anything, vacancy rates are likely to budge lower in 2019.

“In these circumstances effective rents should continue to tick-up and prime office yields could edge down. Notwithstanding the fact that more than one third of the office stock has traded since 2013, development will continue to provide opportunities for investors.”

The expansion in PRS investment has been one of the major themes of 2018, and investor demand remains very strong for Irish residential property assets. Benign macroeconomic conditions, strong population growth and a sluggish supply response have led to a chronically undersupplied market, ensuring sub-2% vacancy levels across all locations and strong rental growth. Assisted by planning changes we are now beginning to see a pick-up in residential construction output. In due course this will cause rental growth to moderate from current unsustainable levels, Savills said.

However, the large gap between supply and demand, and the rate at which this can be narrowed, mean the Irish residential market will remain undersupplied until 2023 at the earliest, and that rents will continue on an upward curve, Savills’ McCartney argued.

McCartney added:  

“This will attract further capital and, already in the opening months of 2019, we are seeing yields sharpen below 4%. As with offices, construction development will provide opportunities for PRS investors and we are likely to see the first true purpose-built rental blocks emerging in prime rental locations.

“Given strong jobs creation, rising disposable incomes, and rapid population growth, Ireland’s consumer economy is very robust. Despite investors’ ambivalence towards retail property at a global level, stores in Ireland’s prime locations are trading well and continue to attract capital. The retail warehousing sector is currently outperforming in both the occupational and investment markets, and this should be sustained as the flow of new housing development strengthens.

“The buoyant consumer economy is also contributing to a requirement for more warehousing and logistics space, and Brexit uncertainty may also be feeding into this. Strong occupier demand has pushed vacancy rates below 3% and rents are rising – factors which are attracting investors. The perennial challenge for investors in Irish logistics is sourcing product, but the development pipeline is now flowing and will provide opportunities to deploy capital through 2019 and beyond.”

james.wallace@realassetmedia.com