july 2012 cbre | research · include the sale at auction of a vacant 2,383m2 industrial building at...

CBRE | Bi-Monthly Irish Commercial Property Research Report of 7

CBRE | Research

BI-MONTHLYRESEARCH REPORT

July 2012CBRE | Research

THE OFFICE MARKETThere are a number of active requirements for office accommodation in Dublin atpresent including requirements from Twitter, Deutsche Bank and Capita amongstothers. However, the volume of office enquiries has slowed somewhat in recent monthsand transactions are taking a long time to finalise at present. As a result, take-up in thecapital in Q2 2012 is likely to be less than the 34,000m2 achieved in the same periodlast year. Heightened uncertainty about prospects for the Eurozone in recent monthshas undoubtedly had an impact, with some corporate occupiers postponing locationdecisions as a result. A number of occupiers who were potentially in the market fornew office accommodation are being offered attractive terms by their landlords to remain in existing buildings, which isalso affecting demand to some extent. Although there is still some downward pressure on rents for secondary officebuildings, prime headline rents in all locations of Dublin have remained stable over the last few months. The mostsignificant office letting to sign recently was the letting of 3,200m2 to BSkyB at Burlington Plaza in Dublin 4. Othertransactions that signed recently include a letting of 2,045m2 to Towers Watson and a letting of 1,746m2 to BNPSecurities at the Trinity Point building in Dublin 2; the letting of 1,114m2 to Jazz Pharmaceuticals at Connaught House inDublin 4; the letting of 600m2 to Avestus at Embassy House in Ballsbridge, Dublin 4 and the letting of 450m2 to WilliamGrant at Iveagh Court in Dublin 2. The extent to which office capital values have declined from peak and the lack ofspeculative development at present is encouraging some developers to purchase buildings for refurbishment on the basisthat there will ultimately be a scarcity of quality office accommodation in prime locations. For example, there wasconsiderable interest in the recent sale of The Mill Building on Barrow Street in Dublin 4, which is currently reserved.Evidence of pent-up demand from cash purchasers for vacant or part-let office buildings up to €5 million in Dublin citycentre could result in some more office properties being offered for sale over the coming months. There is traditionally aslowdown in activity in the Dublin office market during the months of July and August. However, it appears that activitywill remain relatively consistent through the Summer this year. Considering the long lead in time to sign office lettings atpresent, the most likely outturn for annual take-up in the office market in the capital this year is approximately100,000m2, compared to more than 160,000m2 in 2011.

For further information contact: Willie Dowling or Mark Smyth in our Offices Department at wil l [email protected] ;[email protected] or Paddy Conlon in our GCS /Tenant Rep Department at [email protected]

THE RETAIL MARKETAs we approach mid-year, there is an encouraging level of transactional activityongoing in the retail sector of the Irish property market with much of this activityemanating from the ability to negotiate attractive deals in the current climate. Therehas been a notable increase in enquiries from occupiers wanting to start newbusinesses in a range of different locations across the country. Vacancy in prime highstreets and shopping centres is negligible as a result of short-term lettings and pop-upstores. An examiner was recently appointed to 13 Atlantic Homecare stores, adevelopment that will be closely monitored by landlords and tenants over the comingmonths. To date, rents have declined by more than 50% from peak levels andalthough the pace of decline has now eased considerably, rents in some non-primeschemes and locations continue to come under further downward pressure. Althoughthere are obvious sectoral differences, most retailers have been reporting somestabilisation in trading patterns over recent months. Indeed, Tesco Ireland, who wasrecently granted planning permission to develop a new store in Bray, Co. Wicklow,reported its first quarter of like-for-like sales growth since 2010 in Q1 2012. Theircompetitors Aldi and Lidl, who between them have almost 12% market share of the


CBRE | Research



Irish grocery market, remain very expansionary and are both awaiting a number of planning decisions in a range oflocations around the country at present. The BWG Group who operate the Mace and Spar brands are also to increasetheir number of Irish outlets this year. Following two years of virtually no new speculative retail accommodation comingon stream, construction has now started on the development of a new cinema and leisure complex at CharlestownShopping Centre in Finglas in north Dublin. The Irish furniture retailer EZ Living recently opened its 12th Irish store atAirside Retail Park in north Dublin. Lifestyle Sports has expanded into the former La Senza unit in Dundrum Town Centre,while Apple reseller Compu B have taken over the store formerly occupied by Sony in the centre. Timberland andSkechers are to open new stores at Liffey Valley Shopping Centre in West Dublin where Diesel have recently relocated to anew unit on the downstairs level. Dealz continue their expansion trail and are to open a new store at Stillorgan ShoppingCentre in Dublin later this year having recently opened new stores in Drogheda Town Centre and Shannon, Co. Clare.There is particularly strong demand at present for restaurant units with a number of properties let to restaurateurs inrecent weeks. A deal has been agreed on the former Rhodes restaurant in Capel Street in Dublin 7; a restaurant hasrecently been let on South William Street in Dublin 2 and Nandos are to open new restaurants in Blanchardstown andLiffey Valley. Meanwhile, there is much excitement about the announcement that celebrity chef Jamie Oliver is to open arestaurant in Dundrum later this year. One of the most significant developments in the retail sector in the last few monthswas the publication of revisions to the Retail Planning Guidelines. The revised guidelines will lead to a more evidenced-based approach to retail planning going forward. They will facilitate larger retail stores in some locations but moreimportantly will re-balance planning towards the cores of cities and towns as opposed to new retail parks or in out-of-town retail centres. The cap on supermarkets in Dublin has now been raised by 500m2 to 4,000m2 and by 500m2 inCork, Galway, Waterford and Limerick to 3,500m2. Significantly, new retail parks will now be restricted to the sale ofbulky goods which will create an anomaly between existing and new retail parks, albeit there are no new schemes beingdeveloped at present. With an increasing number of leases in the retail sector containing a turnover-related element, theSociety of Chartered Surveyors Ireland (SCSI) have now produced guidance notes on Turnover Rents for landlords, tenantsand their advisors. We expect to see continued activity in the retail property market over the coming months with many ofthe transactions that have been in legal’s for some time being completed.

For further information contact: Michael Harrington or Florence Stanley in our Retail Departmentat [email protected] or f [email protected]

THE INDUSTRIAL MARKETLike all sectors of the Irish property market at present, although there is activity, gettingindustrial transactions completed is not for the faint-hearted. Much of the activity in thissector over recent months has been driven by occupiers restructuring leases or takingadvantage of the ability to negotiate attractive rents and purchase prices in the currentclimate. There is some evidence of existing occupiers purchasing their premises to takeadvantage of current pricing although with funding remaining scarce, this trend islimited to occupiers with cash at their disposal. Although there is a lot of industrial accommodation being marketed to letin Dublin, there is a shortage of modern logistics facilities in some prime locations, particularly for units above 8,000m2,which is proving an issue for some of the multinationals and data centre occupiers that have active requirements for largefacilities. Rents for prime industrial buildings in Dublin have stabilised at approximately €60 per square metre in recentmonths. We are beginning to see evidence of greater divergence between rents for prime and secondary buildings in thecapital, with secondary and provincial rents continuing to come under further downward pressure over recent months.Transactions recently agreed include the letting of 4,845m2 at Unit 4, Crosslands Industrial Estate in Ballymount, Dublin12 to Fastway Couriers; the letting of 1,001m2 at 29 Spruce Avenue in Stillorgan to The Furniture Liquidator; the letting ofUnit A4 at Riverview Business Park on the Nangor Road, Clondalkin to NTR Metals and the letting of 508m2 at Unit T24at Stillorgan Industrial Estate to Production Services Ireland Ltd. The UK furniture retailer DFS has recently leased a1,436m2 warehouse in Rosemount in Blanchardstown, Dublin 15 to service their recently-opened store at


CBRE | Research



Blanchardstown. Outside of Dublin, a deal has recently been signed to let 13,470m2 at the former Xerox facility inDrogheda to Paypal, who announced the creation of 1,000 new jobs in this location earlier this year. One of the mostsignificant industrial sales to be agreed in the first half of 2012 was the agreement to sell the 4,138m2 former Mitsubishifacility at Westgate Business Park in Ballymount in Dublin 12, which has recently been reserved. Other recent salesinclude the sale at auction of a vacant 2,383m2 industrial building at JFK Industrial Estate in Bluebell, Dublin 12 to anowner-occupier for €590,000 and the sale of a car showroom facility on a 2 acre site at Cookstown Industrial Estate inTallaght at auction for more than €500,000. There is very limited demand for industrial sites at present other than forpre-lettings on a design-and-build basis where the project is fully fundable.

For further information contact: Garrett McClean in our Industrial Department

at [email protected]

THE IRISH INVESTMENT MARKETA number of investment transactions that were negotiated earlier in the year haveclosed in recent months which will be a welcome boost to investment turnover for Q22012, following negligible investment spend over recent quarters. Indeed, investmentspend in Ireland during Q2 was more than €120 million compared to a mere €15.5million of spend in Q1 2012. Transactions that have closed recently include the sale ofthe One Warrington office building in Dublin 2, which was sold by NAMA to a USinvestor for over €27 million, reflecting an initial yield of 7.25%; Riverside II in DublinDocklands, which sold for approximately €35.6 million, reflecting an initial yield of8.9% and Custom House Plaza 4 in Dublin’s IFSC, which sold for approximately €9.5million, reflecting an initial yield of 10%. Kennedy Wilson and partners Fairfax Financial have also recently completed thepurchase of the 210 bed Alliance apartment building in Dublin 4 for €40 million, reflecting an estimated net initial yieldof 6.1%. Investment properties that have been signed recently include the sale to a private Irish investor of two Bank ofIreland branches at St. Stephen’s Green, Dublin 2 and Arran Quay in Dublin 1 for a combined figure of approximately€7.65 million. We understand that a retail investment on Grafton Street is under offer for approximately €4.6 million,reflecting an initial yield of 7.87% while a property let to Skechers on Henry Street in the capital is reportedly under offerat €4.5 million, which would reflect an initial yield of 6.5%. Brooklawn House in Ballsbridge, Dublin 4, which had beenguiding €17.5 million, has now reportedly gone to best bids as has St. Martin’s House on Baggot Street in Dublin 4,which had been guiding €37.5 million. Both of these properties are believed to have attracted interest at significantlybelow the guide prices. There has clearly been an improvement in the volume of investment properties being offered forsale in the Irish market over the last six months with banks, receivers and NAMA all releasing more product for sale.Despite this, there is arguably still not enough investment product being released for sale to satisfy current demand levels.Prime yields have strengthened slightly in recent months with prime retail and prime office yields in Dublin improving byapproximately 25 basis points to 6% and 7% respectively. While institutional investors are still primarily focussed oninvestment opportunities in Dublin, private investors are quite active throughout the country with a large number ofinvestment properties being traded at present, albeit at double digit yields in many cases. Considering the scarcity ofprime investment opportunities, some investors are now refining their investment criteria and considering some ‘value-add’ opportunities such as over-rented properties or assets with some location or letting risk. NAMA have recentlyreleased a portfolio of six retail units at Edward Square in Galway City to the market. This investment, which is guiding€27 million, will prove an interesting test of investor appetite for prime real estate outside of Dublin. Other properties thathave recently come to the market include The Forum Building in Dublin’s IFSC, which is guiding €28 million; a hotel leton a long lease at Parnell Street in Dublin 1, which is guiding €23 million; Stack B at Dublin’s IFSC, which is guiding €7.8million and Finglas Village Centre. A number of financial institutions continue to explore the potential for loan sales,seeing this as an effective way to reduce their balance sheet leverage and their exposure to real estate. Sydney-basedPepper Home Loans have been confirmed as the purchasers of GE Money’s Irish mortgage loan book. Meanwhile,


CBRE | Research



Kennedy Wilson & Deutsche Bank were the successful purchasers of Lloyd’s ‘Project Prince’ loan book of secondary officeand retail properties in Ireland, for a price of €61 million, which reflects a 83% discount. Negotiations are continuing onthe sale by AIB of the ‘Project Kildare’ portfolio, of which 70% of the assets are based in Ireland. Further Irish loan salesare anticipated in the second half of the year.

For further information contact: Sean O’Brien or Colm Luddy in our Capital Markets Departmentat [email protected] m or [email protected]

THE UK INVESTMENT MARKETAlthough the UK economic situation has deteriorated somewhat in recent months andthis in turn has had implications for the real estate sector, there has been nodiscernible let up in demand or change in sentiment towards investment in CentralLondon, which high-net-worth investors still percieve as a safe haven. Although theLondon market continues to hold up well, there are less bidders for some assets thanwould have been the case even 12 months ago. The most dominant investors areMiddle and Far Eastern investors and sovereign wealth funds. Outside of London, therehas been a notable shift in sentiment which has manifested itself in some yieldsoftening over recent months with this effect particularly noticeable in regional markets.Indeed, yields on secondary and provincial properties in the UK have weakened bybetween 10 and 25 basis points over the last few months alone. Irish investorscontinue to sell assets in the UK although this market has certainly become thinner overrecent months. In one of the largest tranactions in London this year, the German fund RREEF purchased Drapers Gardensin the City on behalf of Chinese investors from an Irish investor for £285 million, reflecting an initial yield ofapproximately 5.0%. Another Irish investor is reported to have sold 23 Savile Row, in the West End for approximately£219 million, which would reflect a yield of 3.7%. As has been widely publicised, Malaysian investor SP Setia andGerman fund RREEF are in talks to purchase Battersea Power Station in London from NAMA for £375 million. An Irishinvestor is currently selling a prime retail investment on Bond Street, for which the guide price is £11 million. Elsewhere,contracts have been exchanged to sell Senator House in the City for £70 million, reflecting a yield of 8.75%. Outside ofLondon, an Irish investor is currently selling the Citymarket office building in Edinburgh in Scotland, which has a guideprice of £37.3 million. Loan sales of UK assets continue to be announced by Irish institutions. AIB have recently appointedCitigroup to sell a UK property portfolio on their behalf while NAMA’s ‘Project Chrome’ which comprises 38 properties inthe UK, is now reportedly under offer. The occupier and investment sectors in London are expected to slow downconsiderably over the coming weeks as many people leave London to avoid the Olympics. However, on the other handthere will be a lot of different nationalities visiting London for the Games who may well investigate investmentoppportunties while in the city. A combination of Jubilee celebrations and the Olympics effect are boosting tourism inLondon which in turn is proving beneficial for the retail and hotel sectors in particular.

For further information contact: Caroline McCarthy in our Capital Markets Departmentat [email protected]

THE DEVELOPMENT LAND MARKETAs has been the case since the beginning of the year, transactional activity in the development land sector is relativelyhealthy at present with a large number of sites coming to the market, bids being received and transactions concluding allaround the country. This activity is driven by the fact that average land prices are down more than 80% from peak levels.Some recent land sales outside of Dublin include the sale of a 194 acre farm at New Ross, Wexford for €1.76 million; thesale of a 146 acre farm at Clonmore, Co. Carlow for €910,000; the sale of a 214 acre estate at Ardagh, Co. Longfordfor €1.36 million; the sale of a 95 acre farm at Enfield, Co. Meath for €886,000; the sale of 81 acres at Ryelands, Co.Kilkenny for over €800,000; the sale of a 79.2 acre site in Wexford for €590,000; the sale of 42 acres of developmentland at Carrick-on-Shannon for €400,000; the sale of a part-zoned 31 acre holding at Tyrellspass, Co. Westmeath for


CBRE | Research



€375,000 or €12,100 per acre; the sale of 28.5 acres at Gowran, Co. Kilkenny for €335,000 or €14,500 per acre andthe sale of 28 acres at O’Brien’s Bridge, Limerick for approximately �300,000. One of the largest land sales in Dublin inrecent months was the sale of a 160 acre farm at Ballyboughal, Co. Dublin, which changed hands for approximately€14,000 per acre. Outside of agricultural sales there have been no large site sales in the Dublin market this year withactivity predominately focussed on small infill sites in strategic locations. A 3.5 acre site at Airfield in Dundrum wasrecently purchased by the Airfield Trust; lands at Weston Airport in West Dublin sold for in excess of the €3 million guide,while a 1.65 acre site at Seafield Road in Clontarf, Dublin 3 sold at auction for €1.95 million. Meanwhile, the formerHume Street Hospital in Dublin city centre sold in recent weeks for approximately €3 million. A key trend is thedevelopment of lower density schemes on sites where higher density would have been proposed in the past. Indeed,slight changes to the density ranges have been proposed in Draft Planning Schemes in the recently-published Mid TermReview of the 2009-2016 Dun Laoghaire Rathdown County Development Plan. There is a perception that there is a lot ofvacant housing stock and while this is certainly the situation in some local authority areas around the country, there islimited stock in some urban locations, which will undoubtedly be proven when the latest update of vacant housing stock isreleased by the Department of the Environment in September. The recent announcement from NAMA that they will beadvancing up to �2 billion to finish off some development schemes has been broadly welcomed. It will create muchneeded employment in the construction sector but will also enable the State Agency to complete schemes and ultimatelyunlock value for the taxpayer. Finance for development sites remains constrained with much of the sales activity in the firstsix months of 2012 comprising cash purchasers. This has led to an increase in the volume of purchasers seeking tonegotiate ‘license deals’ over recent months. In most cases, the costs of construction exceed the market value ofdevelopment which will severely limit the potential for supply to increase until such time as prices start to rise or the inputcosts of development such as development levies and contributions start to decline. In this regard, the Department of theEnvironment have issued new guidelines for local authorities recommending a lowering of development contributionrates. There is likely to be somewhat of a slowdown in sales activity in the development land sector during July and Augustas vendors focus on preparing sites for sale during the traditional Autumn selling season. There will however beconsiderable interest in the auction later this month of an 841 acre residential farm at Carbury, Co. Kildare – one of thelargest parcels of land to come to the market in some time.

For further information contact: Wesley Rothwell in our Development Departmentat [email protected]

THE HOTELS & LICENSED MARKETThere has been a notable improvement in the volume of hotel propertiescoming to the market in Ireland in recent months with many financialinstitutions having now formulated and starting to implement strategies forthe hotel assets on their books. While many of the larger corporate buyersremain focussed on purchasing prime hotels in Dublin, buyers arenevertheless emerging for hotel assets in other locations if the pricing isattractive. There is considerable interest for well-priced hotels around thecountry, with some overseas bidders undoubtedly also influenced byfavourable exchange rates at present. NAMA have brought the well-known Fota Island Golf Resort in Cork to the marketin recent weeks, guiding €20 million and there is reportedly strong interest in this prime property. Other hotel propertiesthat are formally on the market include the 145 bed Cork International Airport Hotel, which is guiding €4.75 million; the152 bed West County Hotel in Ennis, Co. Clare on a site of approximately 6.0 acres, which is guiding between €2.5million and €3 million; the 81 bed Dolmen Hotel in Carlow, which is guiding €2 million; the Baily Court Hotel in Howth,Co. Dublin, which is guiding €950,000; the 31 bed Clonakilty Hotel in Cork, which is guiding between €600,000 and €1million; the Walter Raleigh Hotel in Youghal, Co. Cork, which is guiding €450,000 and the Drinagh Court Hotel inWexford Town, which is guiding €230,000. A lease has just been signed by Travelodge Ireland on the 39 bed Mercer


CBRE | Research



Court Hotel in Dublin city centre. This property attracted very strong interest and attracted 12 bids. Other hotel propertiesthat have changed hands recently include The Clare Inn in Ennis, Co. Clare, which sold for approximately €1.8 million;The Harbour View in Schull, Co. Cork, which sold for approximately €1.25 million; Darby O’Gills Hotel in Killarney, Co.Kerry, which sold at auction for €735,000; the Newbay Country House in Wexford, which sold for a price in the region of€650,000 and the Merriman Hotel in Kinvara, Co. Galway, which sold for €610,000. Active negotiations are continuingon a number of other hotel properties including The Portobello and Leeson Hotels in Dublin; the Rock Glen Hotel inClifden, Co. Galway and the Killerig Hotel in Carlow. In recent weeks, it has been announced that US hotel managementcompany Interstate Hotel Resorts will operate The Marker Hotel at Grand Canal Quay, which was purchased towards theend of last year. This hotel, which will operate as a ‘Leading Hotels of the World’ is expected to open for business in early2013. BDL Ireland Management Ltd, who earlier this year were appointed by Lloyds Banking Group to asset managehotels on their behalf in the Irish market, have now formally taken over the running of ten hotel properties around thecountry. There has been some sales activity in the licensed sector in recent months also. Weir’s Pub in Dun Laoghaire,Co. Dublin changed hands at auction for €450,000. The well-known Purty Kitchen premises in Dublin’s Temple Bar wasbrought to the market recently on the instructions of a receiver guiding €2.75 million. This sale will be an interesting testof the market for large freehold pub properties in Dublin city centre. Other Dublin pubs that are being formally marketedat present include The Legal Eagle at Chancery Place, Dublin 7, which is guiding €525,000; The Chancery Inn at InnsQuay in the city, which is guiding €500,000 and McKenna’s on Upper Clanbrassil Street in Dublin 8, which is guiding€470,000. Outside of the capital, having generated considerable interest, a sale has now been agreed on The Ivy Inn inNaas, Co. Kildare while a sale has also recently been agreed on the Ardmore Bar in Bray, Co. Wicklow, which had beenguiding €500,000. Well-known publican Charlie Chawke has leased Searson’s Pub on Baggot Street in Dublin, which isdue to reopen shortly. Tourist numbers are holding up quite well, particularly in Dublin and according to STR there hasalso been an improvement in hotel performance numbers with RevPar in Dublin having improved for the last 21consecutive months. Hoteliers are expecting a good summer season, buoyed to some extent by the Government’sdecision to retain the lower rate of VAT of 9% for the tourism industry until 2013. Despite this, hotel properties aroundthe country continue to be put into receivership, with hotels in Mayo, Cork, Kilkenny and Donegal having gone intoreceivership but continuing to trade in recent weeks. The first half of 2012 has certainly witnessed an improvement in thevolume of hotel and licensed properties being formally marketed for sale. Hopefully this momentum will continue for thesecond half of the year with a large number of hotel and licensed sales due to be concluded over the coming months. Ifvendor funding was more readily available to facilitate the sale of hotel and licensed properties, we believe thattransactional activity in this sector would improve even more significantly.

For further information contact: Paul Collins, Dermot Curtin or John Hughes in our Hotels & Licensed Department atpaul.coll [email protected] or dermot.curt [email protected] o r [email protected]

THE BELFAST MARKETThe dichotomy between the performance of investment and occupier markets hasbecome very evident in the Belfast market over the last two month period. Preliminaryfigures for investment spend in the second quarter of 2012 point towards the largestlevel of quarterly spend since the end of 2010. However, on the other hand, activity inthe occupier markets has been disappointingly sluggish in recent months, primarilydue to delays in decision-making. Investment activity appears to be very focussed onspecific covenants as is evidenced by a number of retail investments over the last fewmonths. However, the weak occupational market and wider macro-economic issueshas led to a softening in yields for some properties. Three significant investment dealssigned in the Northern Ireland market in recent months, including the sale and leaseback of a large format Tesco store inLisburn to the UK fund manager LaSalle IM for a reported net initial yield of under 5.0%; the sale of a Sainsbury’s store inDerry, again purchased by LaSalle IM for £17.9 million, reflecting an initial yield of 5.8% and the purchase by Metric


CBRE | Research



Property Investment of a B&Q store in Faustina Retail Park in Derry for £17.4 million,reflecting an initial yield of 7.5%. Office occupier activity is considerably less than whatwas expected at the start of the year with all signs now pointing towards a lower levelof annual take-up than had been forecast. In this regard, it is disappointing that adecision regarding the potential lowering of corporation tax in Northern Ireland fromits current rate of 24% has now been postponed until Autumn. The most significantoffice lettings to sign in recent weeks include the letting of 2,500m2 to ChicagoMercantile Exchange at Millennium House in Belfast; the letting of 1,183m2 atRiverside Tower in the city to Axa and the letting of 820m2 of accommodation at Forsythe House in Belfast to HewlettPackard. The tourism sector continues to storm ahead regardless with the Titanic Quarter facility in Belfast continuing tooutperform even the most optimistic observers. Coupled with the recent hosting of the Irish Open and imminent openingof the Giant’s Causeway visitor centre, hotel operators across the Province are expecting to see some of the bestoccupancy rates in recent years when figures are released at the end of the month.

For further information contact: Brian Lavery or Chris Callan in our Belfast Officeat [email protected] o r chris.cal [email protected]

july 2012 cbre | research · include the sale at auction of a vacant 2,383m2 industrial building at...

Documents