The Irish economy is set to enjoy the fastest growth in Europe and with little or no construction having taken place in recent years, the demand for Irish property remains strong. When the first signs emerged that the commercial property sector had begun to finally turn the corner in late 2012, few could have imagined how fast the pace of recovery would be. Supported by an improvement in the domestic economy, coupled with depressed property prices and high rental yields, demand has been so strong that 2014 is on course to break all records.
Over €4 billion of asset sales were recorded in 2014, exceeding the previous peak of €3.6 billion set in 2006. There have been some notable changes in the dynamics of the property market over the past 18 months, which is helping to drive prices higher. In the early stages of the recovery, demand primarily came from foreign institutional investors, like Blackstone and Kennedy Wilson, who started to take advantage of depressed prices and bought up several high quality assets in prime locations.
Today, the market is much broader and is being further strengthened by domestic buyers, including the newly established Real Estate Investment Trusts (REITs) which have been very active since their launch in 2013. Such is the demand that liquidity has spread to the secondary market and importantly outside of Dublin.
In the first half of 2014, NAMA alone accounted for an incredible 22% of all completed loan sales in Europe, highlighting their progress in shrinking their balance sheet. A positive driver for the market is that there is still limited supply for certain types of property, particularly Grade A office space in Dublin. In response, Dublin office prices have increased by more than 28% since the beginning of the year, and rents have now risen to an average of €45 per sq. ft. In comparison, rent on average in the City of London is £60 per sq. ft., while in London’s Docklands it is £39.50 per sq. ft. At these levels, one should question how much further rents can rise.