investment digest | irish cre h1 2016

Investment DigestIrish Commercial Real Estate, H1 2016

INVESTMENT DIGEST | Irish Commercial Real Estate, H1 2016

Introduction

Welcome to the inaugural edition of the Investment Digest – a joint collaboration between CBRE Ireland and Allsop Ireland, focusing on investment trends and transactions in the Irish commercial property market during the first six months of 2016.

By combining the rich data compiled by Allsop on income-producing commercial investment transactions throughout the country with CBRE’s comprehensive data on investment transactions, this document provides a concise summary of transactional activity in the Irish commercial property market in the first half of 2016.

At the moment, other than data collected by the State on stamp duty receipts, which gives some limited insight on the volume of transactional activity in the non-residential property market, there is no central repository for data on commercial property transactions. Investors therefore have to make investment decisions and underwrite transactions based on a myriad of different data sources, all of which are collated using different assumptions - an issue that has been pointed out to respective Governments over recent years. In the absence of a comprehensive national database, Allsop and CBRE have combined

their comprehensive datasets to produce a unique perspective on the sale of income-producing commercial property in Ireland in the first half of 2016. We have also reviewed sales of vacant properties by Allsop in the first half of 2016

Under current data protection legislation, the publishing of sales prices, other than sales by auction, is heavily restricted. As the market leaders in national auctions, Allsop Ireland holds the largest public register of commercial property prices in Ireland. Combined with CBRE’s market intelligence on income-producing investment transactions, this report provides interesting analysis on the value and volume of transactional activity in the CRE sector around the country during H1 2016 from small provincial properties to multi-million Euro transactions, giving a unique perspective on liquidity and buyer profiles in different regional locations, sectors and price brackets. The report was drafted in the immediate aftermath of the unexpected Brexit referendum result in the UK. This analysis is therefore timely enabling us to monitor any impact the Brexit result has for the Irish commercial investment market going forward.

We hope that you find the analysis interesting.

MARIE HUNTExecutive Director & Head of Research CBRE Ireland E. [email protected]

ROBERT HOBANCommercial DirectorAllsop Ireland E. [email protected]


Key Findings

• 238 individual income-producing commercial investment transactions totalling more than €2.95 billion were completed in the Irish market in the first half of 2016. The transactions ranged in value from €29,000 to €950 million.

• One transaction of more than €500 million accounted for less than half of 1% of the number of commercial investment transactions signed in H1 2016 despite accounting for almost one third of total investment spend in the period.

• In contrast, almost half of the total number of income-producing transactions completed in H1 2016 had a value of less than €1 million but between them amounted to less than 1% of the total spend in the period.

• 56% of the transactions completed in H1 2016 were located in Dublin with a further 15% of transactions being located elsewhere in Leinster. Just over 18% of transactions were located in Munster, 8% were located in Connacht and only 2% were located in the Ulster counties of the Republic.

• There were no sales of income-producing or tenanted properties of more than €5 million completed in either Connacht or the Ulster counties in the six month period.

• The two most dominant forms of commercial property traded for investment purposes during the first half of 2016 were offices and retail properties both of which accounted for a third of total investment spend in the period.

• The average transaction value of office investments completed in the period was €19.9 million, compared to an average transaction value of €10 million per transaction in the multifamily residential sector, less than €1 million for mixed-use properties, €958,000 in the retail sector (excluding the Blanchardstown Town Centre transaction) and €904,000 in the industrial sector.

• Institutional funds accounted for over 70% of income-producing asset sales of more than €1 million in H1 2016 whereas private buyers accounted for the largest proportion (63%) of sub €1 million transactions in the period.


• There was huge divergence in the yields achieved for income-producing assets sold in the first half of 2016, ranging from 2.3% to 27.71%.

• 82% of the total value of income-producing assets purchased for less than €1 million in the first half of 2016 sold to Irish buyers. However, Irish buyers only accounted for 24% of transactional activity for assets that traded for more than €1 million with US buyers being the most active purchasers for these assets.

• In addition to the 238 sales of income-producing property sales analysed for the purposes of this research, Allsop sold an additional 72 vacant properties in Ireland in the first half of 2016, totalling more than €14.5 million between them.

• There were no European buyers or Irish REIT buyers of assets of less than €1 million in the first half of the year.

“A unique perspective on

transactional activity in the Irish

market in the first half of 2016”

TransactionVolume 238 individual income-producing commercial investment transactions, totalling more than €2.95 billion were completed in the Irish market in the first half of 2016. The transactions ranged in value from €29,000 to €950 million (the sale of Blanchardstown Town Centre in Dublin 15). A further 72 vacant properties, totalling more than €14.5 million were sold by Allsop in the period.

Of the 238 transactions signed in the six month period, only one transaction of more than €500 million was completed (the sale of the afore-mentioned Blanchardstown Town Centre). There were no transactions of between €250 million and €500 million signed in the period. The 1 transaction of more than €500 million only accounted for less than half of one percent of the volume of commercial investment transactions signed in H1 2016 despite accounting for almost one third of total investment spend in the period.

7 individual transactions extending to between €50 million and €100 million were completed in H1 2016 while there were 16 individual transactions of between €10 million and €20 million completed. Interestingly, 62 deals or 26% of commercial investment transactions signed in the first half of 2016 comprised transactions of between €1 million and €5 million with almost half (49%) of all transactions signed in H1 having a value of less than €1 million.

>€500 million / 1

0.4%

€100m - €250 million / 3

1.3%

2.9% 6.7%

5.9%

7.6%

26.1%

< €1 million / 117

49.2% €50m - €100m / 7

€20m - €50m / 16

€10m - €20m / 14

€5m - €10m / 18

€1m - €5m / 62

Volume of Transactions H1 2016

“238 individual transactions were signed in

H1 2016 of which 49% achieved a price of

less than €1 million”

Source: CBRE Research/Allsop

Number of Transactions

Number of Transactions

>€500 million 1

€250m- €500 million 0

€100m - €250 million 3

€50m- €100 million 7

€20m - €50 million 16

€10m - €20 million 14



<€1 million 117

238


Blanchardstown Town Centre

Sold by Green Property for €950 million

during H1 2016

The 238 commercial investment transactions completed in the first half of 2016 amounted to a total of €2.95 billion between them. Although almost half of the total number of transactions signed in the period comprised transactions of less than €1 million in value, the value of the sub €1 million transactions amounted to less than 1% of the total spend in the period demonstrating the wide range in values achieved. In fact, even though there was only 1 transaction of more than €500 million completed in Ireland in the first half of 2016, this transaction accounted for almost one third of total investment spend in Ireland in the period.

A further 19% of investment spend in H1 2016 was accounted for by transactions of between €100 million and €250 million with a further 16% of total investment in the period generated from transactions of between €50 million and €100 million.

“Although 117 transactions

extending to less than

€1 million were signed

in the Irish market in H1

2016, between them they

accounted for only 1% of

total investment spend in

Ireland in the six month

period”

<€1 million / €39.5m

>€500m / €950m

1.3%

€100m - €250m / €567m

€50m - €100m / €458.8m

€20m - €50m / €469.9m

€10m - €20m / €199.2m

€5m - €10m / €127.5m

€1m - €5m / €142.6m

32.2%

19.2% 15.5%

15.9%

6.7%

4.3% 4.8%

Value of Transactions (€m) H1 2016


Value of Transactions

Value of Transactions (€ million)

>€500 million €950.0 32.2%

€250m- €500 million – 0%

€100m - €250 million €567.0 19.2%

€50m- €100 million €458.8 15.5%

€20m - €50 million €469.9 15.9%

€10m - €20 million €199.2 6.7%

€5m- €10 million €127.5 4.3%

€1m- €5 million €142.6 4.8%

<€1 million €39.5 1.3%

€2,954.60


TransactionValue

7 Clanwilliam Square, Grand

Canal Quay, Dublin 2

Rent €48,000 p.a. Sold €815,000.

5.7% yield

Transactions by Region

Of the 238 individual investment transactions totalling more than €2.95 billion signed in Ireland in H1 2016, 56% of the spend was located in Dublin with a further 15% of spend being located elsewhere in Leinster. 18% of the total transactional spend was located in Munster, 8% was located in Connacht and only 2% was located in the Ulster counties of the Republic.

All transactions of more than €50 million in value occurred in Dublin or elsewhere in Leinster.

There was only 1 transaction of between €20 million and €50 million completed in Munster in the period with 2 Munster transactions extending to between €10 million and €20 million completed in the period. The remaining 41 Munster

transactions signed in H1 extended to less than €10 million in value.

There were no income-producing commercial investment transactions of more than €5 million completed in either Connacht or the Ulster counties in the six month period.

Dublin Rest of Leinster Connacht Munster Ulster Total

>€500 million 1 1

€250m- €500 million 0

€100m - €250 million 2 1 3

€50m- €100 million 7 7

€20m - €50 million 11 4 1 16

€10m - €20 million 11 1 2 14

€5m- €10 million 15 3 18

€1m- €5 million 37 7 7 9 2 62

<€1 million 50 23 13 29 2 117

TOTAL 134 36 20 44 4 238

0

10

20

30

40

50

60

>€500m €250m-€500m

Dublin Rest of Leinster Connacht Munster Ulster

€100m-€250m

€50m-€100m

€20m-€50m

€10m-€20m

€5m-€10m

€1m-€5m

<€1m

Transactions by Location H1 2016


“Interestingly, more than 70% of the value of all commercial investment transactions signed in the Irish market in the first half of 2016 was located in Dublin or elsewhere in Leinster”


Donore Road Industrial Estate,

Drogheda, Co. Louth

Rent €110,605 p.a. Sold €1.035m

10.5% yield

Sligo

MayoRoscommon

Galway

Clare

Leitrim

Cavan

Longford

Westmeath

Offaly

Tipperary

Limerick

Kerry

Cork

Waterford

WexfordKilkenny

Carlow

Wicklow

Kildare

Dublin

Meath

Louth

Laois

Monaghan

DonegalAntrim

Armagh

Derry

DownFermanagh

Tyrone

4

Number of Transactions Completed in the 6 Month Period

13436

44

20


Transactions by Sector


Office €1,014,201,200 51 Transactions

Retail €1,014,207,378 67 Transactions

Industrial €43,386,000 48 Transactions

Mixed Use €278,383,106 52 Transactions

Multifamily Residential €123,405,000 12 Transactions

Other €481,020,622 8 Transactions

TOTAL €2,954,603,306 238 Transactions

Office

Retail

Industrial

Mixed Use

Multi-Family Residential

Other

34.3%

34.3%

1.5%

9.4%

4.2%

16.3%

Irish Investment Transactions H1 2016


PwC Headquarters, Dublin Docklands, sold for €242 million

OFFICES

Of the 238 commercial income-producing investment transactions signed in Ireland in H1 2016, 51 transactions (21%) comprised office properties, which between them accounted for almost 35% of the total spend in the period. 1 office property sold for more than €200 million (the sale of the PwC headquarters office building in Dublin Docklands for €242 million) while there was 1 office investment sale of between €100 million and €200 million completed in the period. There were 5 office investments sold for between €50 million and €100 million; 7 office properties sold for between €20 million and €50 million; 4 office investments sold for between €10 million and €20 million; 19 properties for between €1 million and €10 million. Meanwhile, there were 14 office investments sold for less than €1 million in the six month period.

Interestingly, 40 of the 51 office properties sold in Ireland in H1 2016 were located in Dublin with a further 4 located elsewhere in Leinster, 4 located in Munster, 2 located in Connacht and 1 in the Ulster counties of the Republic.

The average transaction value of office investments completed in the period was €19.9 million.

“The two most dominant forms of commercial property traded for investment

purposes during the first half of 2016 were offices and retail properties both

of which accounted for a third of total investment spend in the period”


RETAIL

Of the 238 income-producing commercial investment transactions signed in the first half of 2016 in Ireland, 67 of them (28%) comprised retail properties. The largest transaction to complete in the six month period was the sale of Blanchardstown Town Centre in Dublin 15 for €950 million while the smallest transaction was the sale of a provincial retail premises for €45,000. The large shopping centre sale skewed the results somewhat with over €1 billion or 34.3% of overall investment spend in the six month period comprising retail properties as a result.

28 of the 67 retail transactions completed in H1 2016 were located in Dublin accounting for 71% of the value of retail investments in the six month period. There were 12 retail transactions completed elsewhere in Leinster in the period accounting for a further 22% of retail investment spend in Ireland in H1 2016. Meanwhile, there were 20 transactions completed in Munster in the period which between them accounted for a further 7% of the value of

retail investment transactions in the period. There were 5 retail transactions completed in Connacht in the period and 2 in the Ulster counties in the Republic.

When the large €950 million shopping centre transaction is excluded, the average retail transaction completed in Ireland in the first half of 2016 was approximately €958,000.

Globe Retail Park, Naas Co. Kildare sold for €25.45 million, H1 2016

INDUSTRIAL

One of the often-cited frustrations in the Irish investment market is the scarcity of prime industrial investment properties, with the situation being particularly acute for large-scale premises. This is borne out by our research which shows that even though a total of some 48 industrial investment transactions were completed in the first half of 2016, accounting for 20% of all income-producing investment transactions signed in the period, most of the transactions were relatively small.

The largest industrial investment property to change hands in the six month period traded for €17.8 million. There were 7 industrial investment transactions extending to between €1 million and €5 million while the remaining 40 transactions were all less than €1 million in value. As a result, the total value of industrial investment activity completed in Ireland in H1 2016 was approximately €43.4 million or only 1.5% of total transactions by value.

26 of the 48 industrial investment transactions completed in Ireland in the first six months of 2016 were located in Dublin with a further 10 located elsewhere in Leinster. There were 7 industrial investment transactions completed in Munster in the period and only 5 in Connacht.

The average transaction value in the first half of 2016 in the industrial sector was approximately €904,000.

Units 1A & 1B, Rosemount Business Park, Dublin 15 sold for €17.8 million, H1 2016


MIXED USE

Of the 238 transactions completed in H1 2016, 52 (22%) were described as mixed-use properties. In total, mixed-use properties accounted for more than €278 million of transactional activity in the period or 9.4% of the total value of investment activity in the commercial property market in Ireland during H1.

28 of the 52 mixed-use properties were located in Dublin with a further 6 located elsewhere in Leinster, 10 in Munster, 7 in Connacht and 1 in Ulster. The highest value achieved for a mixed-use property in the period was €93 million.

There were 3 transactions of between €20 million and €50 million in this sector, 2 transactions of between €10 million and €20 million, 4 transactions extending to between €5 and €10 million, 18 between €1 million and €5 million and 24 transactions described as mixed-use that traded for less than €1 million.

The average transaction value in the first half of 2016 in the mixed-use sector was less than €1 million.

1 Abbey Street, Naas, Co. KildareRent €69,000Sold €700,000 9.7% yield

MULTIFAMILY RESIDENTIAL

4.2% or more than €123.4 million of the total income-producing investment spend in Ireland in the first half of 2016 was accounted for by multifamily residential investments with 12 individual transactions completed in the period. The largest of these was the acquisition by IRES Reit plc of a block of apartments at Elm Park in Dublin 4 for €59 million.

9 of the 12 multifamily investment transactions completed during H1 2016 were located in Dublin with 2 transactions completed elsewhere in Leinster and one in Connacht in the period. There were no multifamily investments sold in Munster in the period.

The average transaction value in the multifamily sector in the first half of 2016 was more than €10 million.

Elm Park, Dublin 4, Multifamily block, sold for €59 million, H1 2016


Transactions by Buyer TypeFrom a situation 10 years ago when the Irish investment market was wholly domestic and primarily funded by domestic bank funding, there has been a notable shift in recent years with more than half of all buyers of Irish commercial property now emanating from overseas. In the immediate aftermath of the banking crisis, we saw several private equity funds and opportunistic buyers entering the market purchasing assets and

portfolios, some of which are now being resold in the current climate. Interestingly, these buyers have largely been replaced with long term institutional investors in the last two years with European pension funds and institutions being particularly active in 2015 and 2016.

Our research shows that there is considerable divergence in buyer type depending on the asset price. Indeed, over 70% of the total value

of income-producing assets sold for more than €1 million during the first half of 2016 comprised institutional funds with 13% of the value of transactions of more than €1 million purchased by private buyers and 10% purchased by property companies. In contrast, for tenanted assets that sold in the six month period with a purchase price of less than €1 million, the largest proportion (63%) by value was purchased by private buyers.

Company Confidential Individual Institutional Other Other Private Property Unknown Fund Collective Buyer Company Vehicle

<€1 mill 4% 5% 9% 0% 1% 0% 64% 13% 4%

>€1 mill 0% 4.4% 0% 70.5% 0.8% 1.5% 12.9% 9.8%

“Institutional funds accounted for over 70% of income-producing asset sales

of more than €1m in H1 2016 whereas private buyers accounted for the

largest proportion (63%) of sub €1m transactions in the period”

4%

Unknown

4% 5%

9%

1%

64%

13%

Private Buyer

Property Company

Company

Individual

Confidential

Other

Buyer Profile <€1 million


12.9%

9.8%

4.4%

70.5%

0.8% 1.5%

Private Buyer

Property Company

Confidential

Institutional Fund

Other

Other Collective Vehicle

Buyer Profile >€1 million



Transactions by Buyer Nationality 82% of the total value of income-producing commercial property purchased for less than €1 million in the first half of 2016 was sold to Irish buyers. However, for assets sold for more than €1 million, Irish buyers only accounted for 24% of transactional activity by volume. US buyers were the most active

for assets with a value of more than €1 million accounting for more than one third of investment activity in this cohort in the first half of 2016. Meanwhile, European buyers accounted for 19% of asset sales over €1 million value in H1 2016 while there were no European buyers of assets of less

than €1 million in the first half of the year. Similarly, while Irish REIT’s accounted for 6% of investment transactions of more than €1 million in H1 2016, they purchased no assets of less than €1 million in the period.

European UK Irish Irish US Other Confidential or REIT Overseas Unknown

<€1 mill 0% 6% 82% 0% 1% 2% 9%

>€1 mill 19% 13% 24% 6% 34% 0% 4%

“82% of the total value of income-producing commercial property

purchased by Irish buyers for less than €1 million in the first half of 2016

comprised Irish buyers. However, Irish buyers only accounted for 24% of

transactional activity for assets that traded for more than €1 million”

9%

6%

82%

1% 2%

UK

Irish

US

Other Overseas

Confidential or Unknown

Nationality of Buyers <€1 million

European

UK

Irish

Irish REIT

US

4%

19%

24%

13%

6%

34%

Confidential or Unknown

Nationality of Buyers >€1 million

Source: CBRE Research/Allsop Source: CBRE Research/Allsop


AverageYields

Sligo

MayoRoscommon

Galway

Clare

Leitrim

Cavan

Longford

Westmeath

Offaly

Tipperary

Limerick

Kerry

Cork

Waterford

WexfordKilkenny

Carlow

Wicklow

Kildare

Dublin

Meath

Louth

Laois

Monaghan

DonegalAntrim

Armagh

Derry

DownFermanagh

Tyrone

Industrial Mixed Use Office MultifamilyResidential

Retail

DUBLIN

9.3%

7.1%

6.3%

6.8%

6.7%

REST OFLEINSTER

11.0%

7.5%

16.0%

13.1%

10.6%

N/A

6.9%

9.7%

N/A

7.6%

CONNACHT

11.1%

7.1%

10.4%

10.9%

8.1%

MUNSTER

13.1%

6.7%

9.0%

N/A

7.1%

On the basis that every investment transaction is unique, properties have different locational and physical characteristics and are subject to different leases, it is difficult to generalise when assessing pricing or yields achieved. However, it is interesting to consider the initial yields achieved for all 238 commercial property investment transactions tracked in the first half of 2016 to get a general sense of the yields that property assets achieved in the period. These yields are somewhat

different to the synthetic prime yield series produced by CBRE which look specifically at prime buildings. The July yield series suggests that prime high street retail yields in the Irish market are currently in the order of 3.25%, prime office yields are in the order of 4.65% while prime industrial yields are in the order of 5.75%.

In contrast, the initial yields achieved in the market in the last six months vary considerably being that a large

proportion of the transactions were located outside of the core Dublin market and with a large majority of the total number of transactions extending to less than €1 million. In fact, there was huge divergence in the initial yields achieved for income-producing commercial properties sold in the first half of 2016, ranging from 2.3% to 27.71%!

ULSTER

Averages by Province


VacantPropertiesIn addition to the 238 income-producing investment properties analysed for the purposes of this research, Allsop also sold an additional 72 vacant properties in the first half of 2016. The total consideration achieved for these properties amounts to an additional

€14.5 million, ranging from €725,000 for a vacant office building in Limerick to a vacant former hotel in Waterford for €30,000. The average transaction size of these vacant properties was just over €200,000.

“72 vacant properties

totalling more than

€14.5 million were sold

by Allsop in the first half

of 2016”

0

1

2

3

4

5

6

7

8

Dubl

in

Rest

of

Lein

ster

Mun

ster

Conn

acht

Ulst

er

Milli

on

27 sales

13 sales 18 sales

11 sales

3 sales

Allsop Vacant Sales H1 2016


Dublin Rest of Munster Connacht Ulster Leinster

€7.09m €2.70m €2.55m €1.57m €1m

27 of the 72 vacant properties sold in the first half of 2016, totalling more than €7 million between them were located in Dublin with a further 13 sales totalling more than €2.7 million sold elsewhere in Leinster in the period. There were 18 sales of vacant property in Munster in H1 2016 totalling more than €2.55 million, 11 sales in Connacht totalling €1.57 million and 3 sales totalling approximately €1 million completed in the Ulster counties in the Republic.

Hotels Industrial Mixed Offices Public Retail Use House

2 26 6 12 10 16

26 of the 72 vacant properties were industrial properties with 16 vacant retail premises, 12 vacant office buildings and 10 vacant public houses also sold in the period. There were 6 mixed-used buildings sold and 2 vacant hotel properties.

When analysed by value, industrial properties accounted for more than 31% of the total value of vacant commercial properties sold in H1 2016, with office properties accounting for more than 26%, retail properties accounting for 20% and public houses accounting for 16% of spend.

Hotels

Industrial

Mixed Use

Offices

Public Houses

3%

Retail

36%

8% 17%

14%

22%

Allsop Vacant Sales H1 2016



Price Per Sq MWe have analysed all transactions of less than €1 million to determine an average price per square metre for each sector. The average price per square metre of office properties that sold for less than €1 million in the first half of 2016 was €1,879 per square metre while the

average price achieved for industrial properties in the period was €1,140 per square metre. The average price achieved for retail proeprties in the period was €1,281 per square metre while mixed-used properties achieved a price per square metre of €1,744 in the six month period.

Industrial €1,140 per Sq M

Retail €1,281 per Sq M

Mixed-Use €1,744 per Sq M

Office €1,879 per Sq M

The Chase Building, Sandyford, Dublin 18, sold for €62.5 million, H1 2016


Contacts

DISCLAIMER: CBREInformation contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

Connaught House1 Burlington RoadDublin 4+353 (0)1 6185500www.cbre.ie

St. Martin’s HouseWaterloo RoadDublin 4+353 (0)1 6673388www.allsopireland.ie

investment digest | irish cre h1 2016

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