Property Watch

AIB - A key player in the Irish real estate investment marketThe specialist real estate finance team in AIB, the Property Lending Unit, is actively involved in funding some ofthe largest and most complex real estate finance transactions on a variety of projects across the state.

Special ReportIbec report sets out the impact of a possible Brexit on Irish business.

Over 2,000 residential commencements in thequarter, less than one-third in Dublin+19% QoQ; +50% QoQ in Dublin;

Most agents report that prime office rentsstabilised in Dublin in Q1’16 at around€592-€619 per m2

Office development activity surges aheadwith around 35 building projects currentlyunderway in Dublin city

Dublin market accounted for the bulkof total commercial investmentturnover in Q1’16 ofc. €740 million

Inside this Issue:

From Property Industry Ireland, the most influential property organisation in Ireland

Q1’16

The aim of Property Watch is to bring together all of thelatest data on the Irish property sector and present it ina clear and transparent way.

It is part of Property Industry Ireland’s mission to helpcreate a sustainable recovery in the property sector,underpinned through sharing the best available evidence.

Evidence-based housing policyAs Annette Hughes reports, the Programme forGovernment commits the Minister for Housing,Planning and Local Government to produce a monthlyreport on the output of new housing. This regularhousing bulletin will be discussed at meetings of a newcabinet sub-committee on housing, answerable to anOireachtas Committee on housing and homelessness.

We expect the government to produce an action planfor housing within the first one hundred days of it takingoffice. The monthly housing bulletins are likely to be thebenchmark against which the delivery of this strategyis measured. These reports will indicate the types offinancial, planning and public spending reforms whichare necessary to overcome the barriers to mobilisingnew housing supply.

It is important, therefore, that government has accessto as much market data as possible.

The housing bulletin should be broad-based and shouldlook at the state of the housing sector in its broadestcontext. As well as charting the supply of new homes,data on transactions and rents is vital to understandingthe underlying health of the sector. Past efforts tomonitor housing supply have been limited becausethey used only information collected by State agenciessuch as the Department of Environment, Communityand Local Government and the CSO.

As Property Watch shows, private sector organisationscollect and publish a vast amount of additional informationwhich is vital to understanding the sector. This informationis available to policy-makers, and Property IndustryIreland hopes that the new government will seekthe input of all perspectives and viewpoints whenundertaking policy reform.

This edition of Property Watch – and all future editions –will be sent to all TDs, Ministers and their advisors toensure that government policy and legislation in theproperty sector is informed by the most accurateinformation from all possible sources.

Planning reformOne of the strengths of the Property Watch report is itsability to bring together leading indicators about futurehousing output. Thus, it shows not only what happenedin the property sector over the last quarter, but alsoplots what is likely to happen in the coming quarter.

Planning permission data and commencement noticesshould give a good sense of what the output of newhousing is likely to be in 2016. It will indicate what typeof housing will be delivered, where, and whether it ispart of a development or a one-off house. This will helpavoid repeating past mistakes. However, with so manydelays and uncertainties within the planning system, it isnot easy to determine when the houses will be builtand occupied.

Planning permission data alone cannot fully illustratethe delays which can take place during the pre-planningstages of development. Nor does this data show thehuge range of procedures and practices which exist inindividual planning authorities, and which determine thetime-lag between a new housing development becomingfinancially viable and building work proceeding. TheProgramme for Government commits the Minister toundertake a root and branch reform of the planningsystem, to remove unnecessary delays and providecertainty to the planning system. As this reformhappens, the usefulness of planning data will improve. Itwill help improve transparency and extend the foresightwe have of future housing output.

Dr Peter StaffordDirector, Property Industry Ireland

2

IntroductionGood data helpspeople make betterdecisions

3

There is general consensus amongst property agentsthat the property market got off to a solid start in thefirst quarter of the year. The sentiment expressed in thevarious reports is generally positive, particularly withregard to the Dublin market. The main characteristicsemerging are of a commercial property market which isin recovery mode since 2015 after a prolonged period ofinactivity. In regard to housing, a key priority for the newGovernment, we would be cautiously optimistic aroundthe forthcoming Action Plan for Housing promised in itsfirst 100 days. Perhaps a coordinated effort from allstakeholders, local authorities, housing agencies, theprivate and voluntary sectors may, once and for all,deliver a workable joined up solution to restore aproperly functioning housing market. The challenge(not insubstantial) will then be to implement the planas quickly as possible.

In the residential market, the new supply pipeline isimproving, albeit from a low base. Dublin dominated ona regional basis accounting for around one-third eachof commencements, completions and transactions inQ1’16. This share will need to increase significantly overthe coming quarters if the pent-up demand in theDublin area and the growth in employment is tobe accommodated.

The number of residential property transactions,however, was lower in the quarter, possibly a reflectionof the inadequate supply on the market. The €900million in mortgage lending for house purchase in thefirst quarter is well below what one would expect in anormal housing market. The average first-time buyermortgage rose YoY for the tenth successive quarter to€177,722, while first-time buyers accounted for lessthan half of the number and value of drawdowns in thequarter. The forthcoming review of the Central Bankrules over the summer may see less activity fromfirst-time buyers over the coming months as theyadopt a wait and see attitude.

The one common thread across the commercialproperty sectors is the growing scarcity of Grade Aspace in sought after locations, which is putting rentsunder pressure. This is probably what would be

Annette HughesDirector, DKM Economic Consultants

expected in a market lacking any signs of constructionactivity for almost seven years until 2015. Moreover inan economy which has expanded by almost 20% inthat period and with employment up by close to160,000 from the lowest point in the last recession, it isinevitable that there would be a space requirement toaccommodate that growth. This is particularly evident inthe Dublin office market where estimates suggest thatup to 35 building projects are currently underway inDublin city. Although office construction remainslimited in Cork and Limerick and there were nocommencements in Galway in the first quarter, thedemand/supply imbalance prevalent in each county islikely to lead to a recovery in construction activity in thenext 12 to 18 months. This will, of course, be subjectto developments being viable and the funding being inplace to progress schemes.

Deleveraging continues as Nama works through itsoutstanding debt balances by bringing a number of itsremaining loan portfolios to the market. These includethe Project Ruby (€2.5bn par value) and Emerald(€2.2bn) portfolios, Project Abbey (€700 million) andProject Tolka (€1.5 billion). These loan sales, whencompleted by Nama, are expected to bring thedeleveraging process close to a conclusion in 2016.

On a positive note, the JLL Investment Intensity Indexfor March 2016 included Dublin, in the number 15position out of the top 20 most attractive investmentdestinations in relation to their economic size. These top20 “New World Cities” are expected to continue topunch above their weight as real estate investmentdestinations in 2016.

There are downside risks which can adversely impacta recovery in the property cycle, including globaleconomic concerns, the pressing issue of a Brexit(discussed by Ibec in our special report) and domesticissues in regard to political and economic uncertainty.While the underlying Irish economic recovery remainsbroad based, such external forces, which are beyondour control, may well will hold back growth this year,according to Ibec, which could in turn delay propertyinvestment decisions.

PropertyOverviewStrong economy andgrowth in employmentare key drivers inQ1 2016

The new Programme for Government extends to 156pages, 12 of which set out their ambitious plans forhousing. The phrase “we will” appears 55 times onthose 12 pages. Moreover, there are 12 actions to bedone in the first 100 days and 25 in the first year.Nothing is left out, as the plan aims to address thehousing shortage, the delivery of social housing,homelessness, the rights of tenants and landlords inthe private rented sector as well as planning reform.Interestingly, there is also a section which aims topromote and protect home ownership, an area whichwas noticeably absent in the last Government’s HousingPolicy Statement in 2011. It recognised that homeownership is the tenure which people ultimately aspireto, but acknowledged the costs and consequences ofencouraging people to choose their housing options onthe basis of investment and yield, mistakes which arestill being felt by households across Ireland. Perhaps itis true that time is a great healer.

The main measures in the new programme aresummarised below.

1: Leadership on housing� Within 100 days of taking office, the Taoiseach will

appoint a Cabinet Minister for Housing, who inconjunction with the new Oireachtas Committeeon Housing and Homelessness, will draft and publisha new Action Plan for Housing.

� Local authorities, housing agencies and the voluntarysector shall be expected to contribute to the draftingof the Action Plan, which will be subject to targetsand Cabinet review.

2: Improving housing supply� Accelerate the delivery of the €3.8 billion committedto social housing, to ensure the targets of delivering18,000 additional housing units by the end of 2017,and an additional 17,000 housing units by the endof 2020 are met.

� Increase Rent Supplement and Housing AssistancePayment (HAP) limits by up to 15%.

� Exchequer funding for local authorities for returningmore vacant units to use will be linked with theirperformance in estate management and the statisticsthey regularly publish on same.

� Transfer more powers to local authorities, includingfor the design of social housing.

� Develop a “cost rental” option for low income familiesand increase the number of cost rental units available.

� Overhaul the terms of the Tenant Purchase Scheme.

� Develop a new ‘Help to Build’ funding scheme for thedevelopment of affordable housing in the private sector.

� Explore the option of incentivising developers tobuild and lease back homes to housing authoritiesand associations.

� Introduce a new €100 million Local InfrastructureHousing Fund for local authorities to unlockdevelopment land in high demand areas.

� Support NAMA’s plan to work with and funddevelopers to deliver 20,000 residential units beforethe end of 2020 and sooner if possible.

� Use the projected post-2018 NAMA surplus tofund infrastructure, including affordablehousing programmes.

� New Oireachtas Committee on Housing to examinetax relief proposals designed to encourage a greatersupply of private rented accommodation

� Ask the Oireachtas to consider a temporary targetedreduction of the rate of VAT from 13.5 per cent to 9per cent on new, affordable houses and apartments,both public and private.

� Support the efforts of credit unions in the developmentof new housing.

� Expand the existing targeted development contributionrebate scheme in Dublin and Cork to other areassuffering a housing shortage.

� Monitor and benchmark the use by local authoritiesof the new “Vacant Site Levy”, which comes intoeffect in 2018.

LatestNewsAmbitious policyagenda for housing

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� Request the Central Bank to consider a ‘capacityto pay’ test for first-time buyer tenants, based onrent paid over a five year period to be set of againstthe current deposit rules.

� Retain mortgage interest relief beyond the currentend date of December 2017.

� Establish a new code of conduct for switchingmortgage provider and amend the Code of Conducton Mortgage Arrears to ensure providers of mortgagecredit provide a range of sustainable arrears solutions.

� Provide greater protection for mortgage holders,tenants and SMEs whose loans have been transferredto non-regulated entities.

� Support the Central Bank’s regulation of negativeequity mortgage products which allows homeownersto move house while still in negative equity.

3: Preventing and tackling homelessness� End the use of long-term emergency accommodation,

such as hotels and B&Bs, for homeless families by,in part, delivering 500 rapid-delivery housing units.

� Expand access to the Tenancy Sustainment Protocolthroughout the country.

� End the need for rough sleeping by providing a highlevel of funding for homeless services.

� Maintain the rent limits available under the HAPHomeless Pilot to 50% above the rent supplement levels.

4: Planning reforms� Introduce a similar scheme to the ‘Living City Initiative’

to regenerate town centres and villages.

� Establish a national register of derelict sites, inaddition to the new vacant site levy.

� Propose a new Rural Resettlement Scheme topromote the advantages of rural living.

� Promote higher urban densities in terms of housingdesign, particularly along public transport corridors.

� Commission an audit of land holdings by State bodiesand local authorities that might be used for housing.

� Consult on possible amendments to the planningguidelines to support purpose built studentaccommodation and retirement villages.

5: Protecting and Promoting TenancyRights and Home Ownership

� Work with the Central Bank to develop a new “Helpto Buy” scheme to ensure availability of adequate,affordable mortgage finance or mortgage insurancefor first time buyers.

After a remarkable year for the economy last year, 2016looks a lot more uncertain. In 2015, economic growthsurpassed all expectations as GDP grew by 7.8 per cent- the fastest rate in 15 years. This was accompaniedby strong employment growth of 2.6 per cent creating50,000 additional jobs. A strong recovery in theconsumer economy meant that consumption was up3.5 per cent on the previous year. Early indicators for2016, including retail sales and unemployment, suggestthat this positive momentum has continued so far thisyear. However, there are still many external risks facingthe Irish economy that could hinder growth. As a result,Ibec’s forecast of 4.6 per cent GDP growth this yearcomes with appropriate caution.

This growth forecast, while still the highest expectedfor any European country, is lower than in 2015 for twomain reasons. Firstly, strong growth last year wasprimarily due to three external factors; low oil prices,interest rates and favourable exchange rates for Irishexporters. While two of these factors (oil prices andinterest rates) are unlikely to go against Ireland in thecoming months, their boost to GDP won’t be as strongas it was last year. Growing uncertainty in the globaleconomy also has the potential to hurt growth in 2016.

So far this year, exchange rates have moved againstIrish exporters. This is due to growing uncertaintysurrounding a potential Brexit. Last December, one eurobought 70p but now it will buy 80p. This is bad news forIrish exporters as in the space of four months Irishgoods have become 14 per cent more expensive. Whatwill happen to this rate in the coming months dependson the outcome of the referendum. If the UK votes tostay in the EU, it is likely that the exchange rates willbe more favourable for Irish exporters. However, if theUK votes to leave, the euro/sterling exchange rate couldmove to parity. This would make Irish firms exporting tothe UK 30 per cent less competitive and would have anegative impact on exports and thus growth this year.

Other external risks include growing uncertainty in thewider global economy. In the past, Ireland’s economymoved in unison with global growth. A slowdown inChina and other major economies are symptoms offurther global uncertainty that could affect Irelandindirectly. On the domestic side, strong growth anda rapidly increasing population are putting severepressure on the country’s infrastructure and publicservices. Under the current EU fiscal rules, our abilityto invest in these much needed areas is constrained,despite the fact that borrowing costs are at an all-timelow. The new government should negotiate a moreflexible approach to dealing with the fiscal rules, onethat distinguishes between capital expenditure andrunning costs.

While growth is expected to be lower this year, it is notdue to an underlying weakness in the Irish economy.Last year external factors played a key role in drivinggrowth. This year however, these external forceswhich are beyond our control won’t bring the sameadvantages and will hold back growth.

EconomicOutlookA number of externalrisks are expected tohinder growth in 2016

6

Eurozone 1.6

2015Real GDP Inflation

GDP Growth Prospects for International EconomiesAnnual YoY percentage change

2016(E) 2017(F)

UK 2.2

USA 2.4

Emerging Markets 4.0

World 3.1

1.5

1.9

2.4

4.1

3.2

1.6

2.2

2.5

4.6

3.5

2015

2.8

0.1

0.1

4.7

2.8

2016(E)

2.8

0.8

0.8

4.5

2.8

2017(F)

3.0

1.9

1.5

4.2

3.0

7

Source: IMF. E = Estimate. F = Forecast.

Consumer spending 3.5

2015

Irish GNP and ComponentsAnnual YoY percentage change

2016(E) 2017(F)

Government spending -0.8

Investment 28.1

Exports 13.8

Imports 16.3

GDP (Volume) 7.8

GNP (Volume) 5.6

GDP (Value) 13.5

4.1

-0.9

11.4

9.3

9.4

4.6

4.0

5.4

3.8

1.2

5.9

5.1

5.4

3.9

4.2

4.7Source: CSO, Ibec Forecasts. E = Estimate. F = Forecast.

The supply pipeline for the Irish residential marketreceded in Q1 2016 following a strong final quarterto 2015. Over 3,000 residential units were grantedplanning permission in the first quarter of the year. Thisrepresented a 23% QoQ decline and was mainly drivenby a 56% QoQ reduction in the number of apartmentunits granted planning permission. Houses grantedplanning permission also fell, but by a less significantrate of 8% QoQ. On a YoY basis, planning permissionsgranted for residential units fell by 4%. This was solelydriven by the decline in apartment units grantedplanning as this sector recorded a decline of 20%.Houses granted planning permission increased YoYbut at a meagre rate of 1%.

The eventual feed through of permissions to commen-cements was relatively strong in Q1’16 with over 2,000residential units commenced in the quarter, anincrease of 57% YoY. Of this, 800 commencementswere one-off units. Registrations rose at a similarlystrong YoY rate of 60% in Q1’16 to exceed 1,200, withthe strongest expansion recorded in March 2016.Completions—which conclude the residential supplychain—dropped by a quarterly rate of 16% in Q1’16to less than 3,200, but remained 20% above the samequarter in 2015. Based on current trends, the total levelof housebuilding is forecast at 11,000 units in 2016.

Transactions recorded on the Property Price Registertotalled over 8,800 in Q1’16, 26% below Q4’15 anddown 13% YoY. 2015 was a strong year for residentialtransactions with over 44,000 occurring across the year,so such a relative dip in 2016 may have been expected.

Loan approval volumes fell in Q1’16 following a strongyear in 2015. Over 5,800 loans were approved in thefirst quarter but this represented a YoY decline of 14%and a larger QoQ fall of 18%. Lower numbers of housepurchase loans were the main cause of these declines,registering a decline of 17% YoY. Top-up/re-mortgageloan approvals recorded some positive news with a YoYrise of 20%, but the 738 loans approved in Q1 were26% below the previous quarter.

The trend in the value of loan approvals in Q1’16reflected the volumes outlined above with YoY andQoQ declines, leading to just over €1.1 billion in loanapprovals. House purchase loan approval values fellby over 16% on both YoY and QoQ bases. Top-up/re-mortgage loan approval values also declined at asignificant QoQ rate of 29%, but did increase byalmost a quarter YoY.

The mortgage market recorded a dip in Q1’16, but thisis traditionally the weakest quarter of the year. Thenumber of mortgage drawdowns fell by 3% YoY to lessthan 5,500, and this yearly decline was partly the resultof the exceptionally high levels of drawdowns in Q1’15.By segment, this YoY reduction was solely driven by adecline in house purchase mortgages of 9%, thoughdrawdowns for top-ups/re-mortgages increased by59% in the year to over 780 in Q1’16. On a quarterlybasis, the total volume of drawdowns declined by athird, with reductions of 32% and 34% in housepurchase mortgages and top-ups/re-mortgagesrespectively.

In value terms, total drawdowns actually increased by3% YoY in Q1’16 on the back of the aforementionedgrowth in top-ups/re-mortgages. This segment of themarket expanded by 64% YoY, and more than madeup for a 2% YoY decline in the total value of housepurchase mortgages. The total value of drawdowns fellon a quarterly basis. The value declined by a cumulative30% QoQ to just over €1 billion in mortgage drawdownsin the quarter. Focussing on the FTB segment of themarket, the average mortgage drawdown maintained itsupward trajectory to exceed €177,000, the highest levelrecorded since the second quarter of 2011. Thisreflected a 7% YoY increase and a rise of 4% QoQ.

Dublin dominated on a regional basis accounting foraround one-third each of commencements, completionsand transactions in Q1’16. This share will need toincrease further over the coming quarters if thepent-up demand in the Dublin area and the growth inemployment is to be accommodated.

ResidentialMarketActivityWelcome recoveryin commencementsin first quarter whilemortgage drawdownsfall by one-third

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Bor

der

Wes

t

Mid

land

s

Mid

Eas

t

Dub

lin

Sou

thE

ast

Sou

thW

est

Mid

Wes

t

800

700

600

500

400

300

200

100

0

Bor

der

Wes

t

Mid

land

s

Mid

Eas

t

Dub

lin

Sou

thE

ast

Sou

thW

est

Mid

Wes

t

1,200

1,000

800

600

400

200

0

Bor

der

Wes

t

Mid

land

s

Mid

Eas

t

Dub

lin

Sou

thE

ast

Sou

thW

est

Mid

Wes

t

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Regional Commencements Q1’16 Regional Completions Q1’16 Regional Transactions Q1’16

2,704 4,017 3,091Units Granted Planning

Residential Market Activity

2,345 2,754 2,534- Houses -8%

359 1,263 557- Apartments -56%

2,706 1,742 2,081Commencements +19%

899 765 800of which one-offs +5%

1,492 859 1,263Registrations* +47%

3,289 3,752 3,144Completions** -16%

11,557 12,065 8,879Transactions*** -26%

-4%

Q3’15 Q4’15 Q1’16 QoQ YoY

+1%

-20%

+57%

+27%

+60%

+20%

-13%

1,997 1,997 2,001National Housing Stock (000s) 0% 0%

Loan Approvals Q3’15 Q4’15 QoQ YoY

7,965 7,124 -18%Total Number of Loan Approvals -14%

6,980 6,131 -17%- House Purchase -17%

985 993 -26%- Top-Ups/Re-mortgages +20%

€1,465 €1,345 -18%Total Loan Approval €m -14%

€1,338 €1,189 -16%- House Purchase €m -17%

€128 €156 -29%- Top-Ups/Re-mortgages €m +24%

7,305 8,090 -33%Total Number of Drawdowns -3%

6,491 6,901 -32%- House Purchase -9%

Mortgage Drawdowns

814 1,189 -34%- Top-Ups/Re-mortgages +59%

€1,327 €1,439 -30%Total Drawdowns €m +3%

€1,225 €1,273 -29%- House Purchase €m -2%

€102 €166 -37%- Top-Ups/Re-mortgages €m +64%

€171,993 €170,414

Q1’16

5,831

5,093

738

€1,108

€998

€111

5,446

4,664

782

€1,008

€903

€105

€177,722 +4%FTB Drawdown - Average +7%

9

Source: www.environ.ie

*Registrations refer to the number of units registered with Home Bond and Premier Guarantee. **Completions are measured as connections to ESB. *** Transactions data excludes properties that are not full market price and those under €20,000 and over€5 million. QoQ refers to the latest quarter on quarter percentage change (Q1 on Q4). YoY refers to the latest year on year percentage change (Q1 2016 on Q1 2015). Loan Approval and Mortgage drawdown data from www.bpfi.ie.

Source: www.environ.ie*Mid-West includes all of Tipperary.

Source: www.propertypriceregister.ie*Mid-West includes all of Tipperary.

-23%

Residential property prices across Ireland recordedlow growth and in some instances deflation in the firstquarter of 2016. Asking prices, as recorded by Daft.ieand MyHome.ie, showed modest QoQ growth in Q1’16in Dublin and across the country. Asking pricesnationally grew by 3% QoQ according to Daft.ie. Thiswas driven by more robust QoQ growth outside Dublinof 4%, with asking prices rising at a lower rate of 2%QoQ in the Capital. Daft.ie’s YoY figures paint asomewhat different picture as Dublin prices had onlygrown by 1%, but prices outside of the Capital hadlifted by a substantially larger proportion of 10% YoY.These figures contributed to a YoY national increase inasking prices of 6%. MyHome.ie reported that Dublinhad marginally stronger QoQ asking price growth of 2%in Q1’16 compared to 1% QoQ at the national level.The MyHome.ie results showed that asking prices wereup by 5% YoY on both the national and Dublin scales.

Price valuations for Dublin and the country displayedsimilar levels of growth in the first quarter of 2016.Residential prices, according to Sherry FitzGerald’snational valuations index, increased by 1% QoQ andthe same QoQ expansion was recorded for Dublinvaluations. However, on a YoY basis valuations rose ata stronger rate nationally (4%) when compared to Dublin(1%). A similar trend for house valuations in Dublin wasreported by Knight Frank in Q1’16 with its prime indexfor the Capital rising by 1% on both a quarterly andYoY basis.

The CSO’s mortgage transaction price index showedprices nationally remained stable in Q1’16, withprice decreases of 2% QoQ in Dublin offset by priceincreases of 1% QoQ around the rest of the country.On a yearly basis, prices nationally had increased by8%. However, the two speed nature of the Irishproperty recovery was evident as YoY growth of 4% inDublin in Q1’16 contrasted starkly with strong YoYprice increases of 11% in the rest of Ireland.

With regards to sold prices, YoY growth of 10% wasrecorded for transactions nationally on the PropertyPrice Register in Q1’16 (non- mix adjusted). This wasreflective of growth rates in excess of 9% both in Dublinand around the rest of the country. Using mix-adjustedsold prices, Daft.ie showed that Q1’16 was a quarter inwhich prices grew at a stronger rate of 3% QoQ inDublin, but declined in the rest of the country by 1%, togive a cumulative national QoQ price increase of 1%.The YoY growth rates were slightly different with Daft.ieshowing growth of 4% in Dublin and 13% in the restof the country, contributing to a national house priceincrease of 9% YoY.

In combination, the indices relating to house prices inIreland suggest that prices are growing on a YoY basis,albeit at a moderating rate. This growth is being drivenprimarily by the counties outside of Dublin whererecovery in the market took hold at a later stage andgrowth remains robust.

The well documented issues with supply in the residentialproperty market are placing upward pressure onresidential rents via increased demand across thecountry. Data from the Private Rental Tenancies Board(PRTB) has shown that in Q1’16 standardised rentsat the national level rose by 1% QoQ, but remainedunchanged in Dublin. At over €920 per month, theaverage rent nationally was up by 9% YoY, whileaverage Dublin rents also increased by 9% YoY inQ1’16 to reach over €1,300 per month, returning Dublinrents to boom levels. Daft.ie reported similar trends formix- adjusted average rents in the first quarter of 2016with 2% QoQ growth recorded both in Dublin and therest of the country. On a YoY basis, rents increased by9% in Dublin and by 10% in the rest of the country.Average rents in the Capital, at over €1,450 permonth, were almost double the equivalents in therest of Ireland.

ResidentialPropertyPricesModest growth inasking, valuationand sold priceswhile mortgage-based prices fellin the quarter

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€205,484 €204,175 €210,333

€306,540 €306,613 €312,642Daft.ie Dublin MAAA* (€)

Daft.ie National MAAA* (€)

€166,677 €164,838 €171,045Daft.ie National ex. Dublin MAAA* (€)

€205,024 €205,031 €207,596MyHome National MAAA* (€)

122.6 123.2 124.7Sherry FitzGerald: National (Index 1999 =100)

402.9 402.9 405.6Sherry FitzGerald: Dublin (Index Q4 1996 =100)

PRICES BASED ON MORTGAGE TRANSACTIONS

84.0 86.7 86.5CSO National (Index 2005=100)

78.9 82.5 83.3CSO National ex. Dublin (Index 2005=100)

SOLD PRICES

€236.783 €231,024 €236,486PPR National Average

€168,523 €171,839 €168,838PRR National ex. Dublin Average

€194,231 €199,139 €200,999Daft.ie National MAAA*

€307,558 €303,773 €312,920Daft.ie Dublin MAAA*

€150,712 €158,958 €158,020Daft.ie National ex. Dublin MAAA*

€903 €917 €922PRTB National Standardised Rents

€1,291 €1,311 €1,314PRTB Dublin Standardised Rents

€964 €979 €998Daft.ie National MAAA* (€)

€1,409 €1,435 €1,464

+3%

+2%

+4%

+1%

+1%

+1%

0%

+1%

+2%

-2%

+1%

+3%

-1%

+1%

0%

+2%

+2%

+6%

+1%

+10%

+5%

€286,089 €285,921 €290,301MyHome Dublin MAAA* (€) +2% +5%

PRICE VALUATIONS

+4%

+1%

129.9 134.0 135.9Knight Frank Prime Dublin Residential

(Index Dec 2012 = 100)

+1% +1%

+8%

85.3 86.6 85.2CSO Dublin (Index 2005=100) -2% +4%

+11%

+10%

€388,188 €380,507 €371,554PPR Dublin Average -2% +10%

+9%

+9%

+4%

+13%

RESIDENTIAL RENTS

+9%

+9%

+9%

+9%

Q3’15 Q4’15 Q1’16ASKING PRICES

Dublin €371,554

€331,672

€254,741

€231,037

€205,312

€180,306

€176,736

€157,051

€150,931

€144,398

€140,818

€140,775

€138,531

€136,512

€133,277

€130,342

€129,602

€129,144

€127,247

€121,695

€119,204

€107,681

€98,421

€88,583

€84,843

€82,938

Wicklow

Kildare

Meath

Cork

Galway

Kilkenny

Louth

Kerry

Clare

Wexford

Limerick

Waterford

Carlow

Westmeath

Laois

Sligo

Tipperary

Monaghan

Mayo

Cavan

Donegal

Offaly

Leitrim

Longford

Roscommon

Average Sold Price byCounty Q1 2016

Residential Property Prices

QoQ YoY

Daft.ie Dublin MAAA* (€)

€718 €727 €740 +2% +10%Daft.ie National ex. Dublin MAAA* (€)

* MAAA = Mix-Adjusted Annual Average.** Transactions price data excludes properties that are not full market price and those under €20,000 and over €5 million but includes VAT. Not Mix-Adjusted.** Transactions price data excludes properties that are not full market price and those under €20,000 and over €5 million but includes VAT. Not Mix-Adjusted.QoQ refers to the latest quarter on quarter percentage change.YoY refers to the latest year on year percentage change.

Source: Property Price Register, DKM Analysis.Transactions price data excludes properties that are not full marketprice and those under €20,000 and over €5 million, but includes VAT.Not Mix-Adjusted.

11

The sentiment expressed in the various reports fromproperty agents on the Dublin office market in Q1’16is positive, reflecting the strong level of commercialmarket activity in the opening months of the year.Following the strong uplift in activity in 2015, withaverage take-up in Dublin of the order of 252,000m2,the take-up continued at a strong pace in Q1’16. Thetotal average take-up, according to data from fiveproperty agents, came in at 53,700m2 in Q1’16compared with the corresponding figure of 45,700m2

in the same quarter last year (+18%). According toLisney and Knight Frank, the State (notably in thesemi-state sector) represented approximately 30 percent of take-up in the first quarter. Other dominantsectors were the computer or high-tech sector (34%according to CBRE) and financial services (20% CBRE).

The level of transactions activity in the city centreincreased at a faster rate with average take-up in Q1’16at 32,500m2, up significantly on the same period in 2015(+29%). Based on the individual agents, the total take-up accounted for between 42% (DTZ SF) of the totalDublin take-up in Q1’16 and 84% (CBRE). Takingaverage take-up levels, the city centre representedalmost 60% of the total take-up in Dublin, up from54% in the same quarter last year.

The recovery in the Dublin commercial property sectorthus continues to gather momentum. This is perhapsnot surprising given that Dublin has accounted for 46%of the employment increase of 151,500 since the lowestpoint during the recession (Q1’12). Moreover, at end ofQ1’16, Information & Communications and Financial,Insurance & Real Estate were the only two sectors inDublin that accounted for in excess of 50% of the totalemployment in those sectors across the State.

The stock of available office accommodation declinedby 20% (Lisney) to 24% (JLL) on the same quarter in2015, although DTZ Sherry FitzGerald, who onlymeasure take-up when a building is occupied by atenant, suggest the decline was more modest, at around7%. In a market comprising a total stock of around3.34m2 in Q1’16 (DTZ SF), the vacancy rate acrossDublin did not change much in the quarter. DTZ SherryFitzGerald and JLL report an increase in the vacancyrate in the quarter to 13.2% and 8% respectively. Theremaining three agents report a decline in the vacancyrate to as low as 7.7%, according to CBRE. The Dublincity centre vacancy rate fell to between 3.7% (JLL) and8.7% (Lisney) while CBRE an DTZ Sherry FitzGeraldreport a CBD vacancy rate of 4.8% at the end of Q1’16.

The significant rise in Dublin prime office rents during2015 (+12%, DTZ SF) did not deter transactions in thefirst quarter. That said, the trend in Dublin prime rentswas unchanged in the quarter, according to threeagents, although JLL and CBRE report quarterlyincreases of 9% and 5% respectively. City centre rentswere also unchanged over the quarter in Q1’16,according to three agents, although JLL reported thatrents increased by 9%. Office yields in Q1’16 rangedbetween 4.25% (Lisney) and 4.65% (CBRE).

The most notable development during the quarter wasthe scale of new development under construction atthe end of Q1’16. Estimates vary from 19 schemescomprising 179,000m2 (Lisney) to 26 comprising319,000m2 (CBRE) schemes, although a recent reportfrom Savills suggests there are currently 35 buildingprojects underway in Dublin city. DTZ Sherry FitzGeraldnote that an additional four new schemes commencedconstruction in the quarter totalling 60,000m2. Thustaking schemes under construction and awaitingplanning, there is substantial new supply expected overthe next three years across Dublin, although very little ofit will come to the market this year. This suggests thatthere is likely to be further upward pressure onrents this year.

CommercialOfficeMarketThe Dublincommercial propertysector recoverygathered momentumin first quarter

12

13

Dublin Take-Up (‘000m2) Q3’15 Q4’15 Q1’16 YTD

Q3’15 Q4’15 Q1’16 QoQ

CBRE 51.7 75.2 52.4 263.1

DTZ Sherry FitzGerald 86.8 45.0 59.9 218.5

JLL 55.8 90.8 45.1 280.4

Knight Frank 50.5 87.5 67.2 274.0

Lisney 45.8 91.6 44.0 263.4

Dublin City Centre Take-Up (‘000m2)

CBRE 33.0 53.1 39.8 188.1

DTZ Sherry FitzGerald 21.1 11.8 25.3 65.8

JLL 25.5 54.5 24.2 160.0

Knight Frank 18.1 46.6 31.4 136.2

Lisney 26.5 58.8 37.0 177.0

Dublin City Centre Rents (€/m2)

CBRE 565 592 592 0%

DTZ Sherry FitzGerald 555 592 592 0%

JLL 592 592 646 +9%

Knight Frank 592 619 619 0%

Lisney 456 480 492 +2%

Dublin Prime Rents (€/m2)

CBRE 565 592 619 +5%

DTZ Sherry FitzGerald 555 592 592 0%

JLL 592 592 646 +9%

Knight Frank 592 619 619 0%

LisneyQoQ refers to the latest quarter on quarter percentage or percentage point change (Q1 on Q4). YTD refers to year to date i.e. the latest four quarters.

570 592 592 0%

Dublin Vacant Stock/Availability (‘000m2)

DTZ Sherry FitzGerald 447.7 435.1 439.9

Q3’15 Q4’15 Q1’16 QoQ

JLL 272.2 268.9 275.3

Lisney 463.6 396.2 385.8

Dublin Vacancy Rates (%)

CBRE 9.3 8.5 7.7 -0.8pp

Sherry Fitzgerald 14.1 -0.9pp -0.9pp -0.9pp

JLL 10.2 -0.9pp -0.9pp -0.9pp

Lisney 13.1 11.2 10.9 -0.3pp

Dublin City Centre Vacancy Rates (%)

CBRE 7.5 6.4 6.0 -0.4pp

DTZ Sherry FitzGerald 9.2 8.9 4.8 -4.1pp

JLL 4.6 3.7 3.7 0.0pp

Lisney 10.8 9.3 8.7 -0.6pp

Dublin CBD Vacancy Rates (%)

CBRE 5.4 5.0 4.8 -0.2pp

DTZ Sherry FitzGerald 9.2 8.9 4.8 -4.1pp

Lisney 8.9 7.8 8.2 +0.4pp

Dublin Office Yields (%)

CBRE 4.70 4.65 4.65 0.0pp

DTZ Sherry FitzGerald 4.25 4.25 4.25 0.0pp

JLL 4.50 4.50 4.50 0.0pp

Knight Frank 4.50 4.50 4.50 0.0pp

Lisney 4.20 4.25 4.25 0.0pp

SCSI IPD 1.20 1.10 1.10 0.0pp

JLL 7.9 7.8 8.0 +0.2pp

Knight Frank 10.5 8.8 8.3 -0.5pp

DTZ Sherry FitzGerald 13.4 13.0 13.2 +0.2pp

Snapshot of Dublin Office Property Market Indicators

Take-up estimates reported by four property agents forQ1’16 were relatively similar, ranging from 51,118m2

(JLL - 40 transactions) to 64,747m2 (CBRE - 47transactions). CBRE noted that 46% comprised salesand the remainder were lettings. Take-up in Q1’16 wastherefore down 25% (CBRE) which CBRE suggestedwas due to the serious constraints of modern industrialand logistics accommodation in prime locations inrecent months. More significant YoY declines werereported by other agents, with take-up according to JLLdown by 55%. Comparably 2015 was an extraordinaryyear with one of the highest levels of take-up recordedin twenty-one years, so the decline in take-up in Q1’16is not surprising. The only source of data on availabilityis DTZ Sherry FitzGerald who reported a sharp declinein Q1’16 to 582,000m2, indicating that take-up maycontinue at a low level as supply decreases.Consequently the vacancy rate decreased to 14.3%(DTZ SF) by the end of the first quarter.

In terms of the quantity of space by size of buildings, alittle over one-fifth of the space (DTZ SF, Lisney) weredeals for buildings below 1,000m2. The volume oftransactions between 1,000 and 4,000m2 accounted for40% of the space, while the number above 4,000m2

accounted for 38% (Lisney). All agents reported thatsouth west Dublin was the dominant location in thequarter with three of the five largest transactions takingplace in the area (JLL). The north west was the secondmost sought after location with 25% of take-up inQ1’16 (JLL).

Dublin prime rents increased to between €78 (CBRE)and €81 (DTZ SF) per m2. The lease lengths areconstant at ten years with a break option after fiveyears, however longer leases are being signed in areaswith intense competition for prime space (JLL). Thusrent free periods are under pressure but remain constantat three months (JLL). Industrial yields varied between5.25% (JLL) and 5.75% (CBRE and DTZ SF) in Q1’16.

The largest deal in Q1’16 was the pre-let to Uniphar for9,300m2 in Greenogue Business Park in south westDublin, one of the first pre-lets to be agreed since 2007(Lisney). The rent will be €97 per m2 which is 15%above the headline rate for existing space (Lisney). The

largest sale was of 5,600m2 on Lower Ballymount Road,Walkinstown in south west Dublin. Fynes Logisticsadditionally agreed the first pre-sale in seven years inlate 2015, for the facilities in Horizon Logistics Parkwhich are currently under construction (Lisney).

Due to the constrained supply, discussions aboutspeculative developments have begun, although thereis no consensus about when such developments wouldstart. CBRE expect that rents would have to increasefurther while Lisney reported that Rohan Holdings has adevelopment program to construct more than 27,870m2

of speculative warehouse space in 2016 and 2017. JLLexpect to see speculative development later this year asthere is only one site currently under construction butmore may apply for planning permissions in 2016.

Prospects for 2016 look promising even though Q1 didhave a lower take-up than in Q1’15 and Q4’15. However2015 was an extraordinary year so similar levels oftake-up may not materialise in 2016 due to the supplylimitations (JLL). Take-up will be centred in the southwest and north west areas although choice across allsize categories is restricted and will likely becomeeven more so as availability decreases.

The real challenge is the scarcity of properties in thelocations and schemes that retailers are specificallytargeting

Consumer sentiment increased at the beginning of thequarter as the KBC/ESRI Consumer Sentiment Indexreached a 15 year high in January 2016. Howeveruncertainties such as the risk of ‘Brexit’ and politicaluncertainty as well as global economic risks resulted insentiment weakening in February and March. The indexrecorded a slight increase in April, indicating thatalthough the weakening trend did not continue,consumers are still cautious as the economicenvironment remains unclear. The slight improvementin April may be due to the continued low inflation andlow interest rates, both of which are supporting thefinancial position of Irish households, an area on whichconsumers responded positively in the survey. Totalemployment increased by 44,100 in the year to Q4’15while retail sales volumes were up by 5.2% in the yearto March 2016.

Industrial& RetailPropertyMarketTake-up down inQ1’16 as Grade Asupply constraintsintensify

14

Snapshot of Dublin Industrial Property Market Indicators

Dublin Take-Up (‘000m2)

128.0 115.6 64.7CBRE

91.2 97.5 51.1JLL

137.2 86.0 60.9Lisney

72.5 75.0 78.0CBRE

75.0 75.0 81.0DTZ Sherry FitzGerald

75.3 78.0 80.7JLL

75.0 78.0 78.0Lisney

1,046 633 582DTZ Sherry FitzGerald

Dublin Vacancy Rate (%)

25.8 15.6 14.3DTZ Sherry FitzGerald

Dublin Yields (%)

6.30 5.75 5.75CBRE

6.00 5.75 5.75

Q3’15 Q4’15 Q1’16 YTD

Q3’15 Q4’15 Q1’16 QoQ

406.5

127.7 102.6 59.5DTZ Sherry FitzGerald 402.3

327.7

365.4

Dublin Prime Rents (€/m2)

+4%

+8%

+4%

0%

Dublin Vacant Stock/Availability (‘000m2)

-1.30pp

0.00pp

0.00ppDTZ Sherry FitzGerald

7.00 6.00 5.25 -0.75ppJLL

6.00 5.90 5.70 -0.20ppLisney

1.90 1.60 1.90 +0.30ppSCSI IPD

QoQ refers to the latest quarter on quarter percentage or percentage point change (Q1 on Q4). YTD refers to year to date i.e. the latest four quarters.

15

This is all welcome news for the retail property marketwhich is witnessing a notable increase in demand forspace from new entrants as well as from existing Irishretailers looking to expand. However, the challenge isthe scarcity of properties in the locations and schemesthat retailers are specifically targeting.

In the capital city, Grafton Street is currently experiencingsubstantial refurbishments of three stores (Bewley’sCafé, Karen Millen and & Other Stories) and interest inspace on Henry and Mary Streets has continued into2016 (Lisney). As demand for retail space has increased,the availability of prime retail space, especially in thecity centre, is at historically low levels (Lisney). Howeverdevelopments in the pipeline include Cherrywood(albeit more long-term), the redevelopment of StStephen’s Green Shopping Centre and an extension tothe Square Shopping Centre in Tallaght (Lisney).Additionally Hines submitted a planning application inFebruary to extend the Liffey Valley Shopping Centrein west Dublin. The development is set to include22,000m2 of additional retail space, 1,800 car parkingspaces and a 2,500 seat indoor Olympic size ice arena(CBRE). One other notable scheme in the pipeline is themajor redevelopment and expansion of the FrascatiShopping Centre in Blackrock, County Dublin, which isexpected to get underway this year and deliver a totalgross floor area of 19,592m2 on completion.

This positive picture is also visible in parts of the restof Ireland. CBRE noted the following announcements -TK Maxx is expanding in Cork and Castlebar, Co. Mayoand Homestore and More have leased a new store inPortlaoise and are looking to expand in other counties.Additionally Centra, Iceland, Lidl and The Range haveall announced plans to open new stores acrossIreland in 2016.

In the retail warehousing sector, over supply remainsan issue in many regional locations, with Lisneycommenting that Ireland has 352m2 of retail parkaccommodation per 1,000 of the population comparedwith the EU 27 average of 232m2 and 264m2 in the UK.As consumer demand continues to recover therequirement to refurbish existing or invest in newcapacity may increase.

As the office market recovery extendsoutside Dublin, the common threadis the depletion of Grade Aaccommodation

Information on the regional property market in the mainurban areas - Cork, Galway and Limerick - is based ondata provided by DTZ Sherry FitzGerald. There is furtherinformation available from Lisney on the Cork propertymarket.

At the outset it is noted that the stock of officeaccommodation across the three markets was1.199 million m2 at the end of Q1’16, 2% above thecorresponding figure at the end of 2015. The small scaleof the office market outside Dublin is evident from thefact that the aggregate stock figure for the threecounties was equivalent to 36 per cent of the total stockin the Dublin market stock. Cork had the largest stockof office accommodation (564,850m2, +2.9% QoQ)followed by Limerick (329,800m2, +1.7%) and Galway(304,000m2, +0.7%) in Q1’16, according to DTZSherry FitzGerald.

Take-up levels were very subdued in Limerick andGalway where just five deals in total were transacted. Incontrast, DTZ Sherry FitzGerald reported that Cork hada substantially higher level of take-up in the first quarter,due mostly to around one-half of the new building atOne Albert Quay being occupied. As a result Grade Aspace dominated take-up in Cork city (98%, DTZSF).However, Lisney, due to a change in approach tomeasuring take-up, reported a much lower take-uplevel in Cork in Q1’16.

A total of almost 177,000m2 of space was availablecross the three counties in Q1’16, over one-half ofwhich was in Cork. In terms of the supply of Grade Aaccommodation, net of signed and reserved space, DTZSherry FitzGerald figures suggest that the tightestsituation was in Galway city and suburbs, which onlyhad 6,500m2 of Grade A space in Q1’16, 1,500m2 ofwhich was in the city centre. Although supply levels inCork overall increased by 10% in the quarter (Lisneyreport an increase of 2.4%), the volume of Grade A

space continued to fall in Q1’16, with just 16,650m2

available in Cork city centre. A total of two and a halftimes this amount of Grade A space was available in thesuburbs of Cork, two-thirds of which represented unitsin the greater than 1,000 to 5,000m2 range. In Limerick,the available Grade A space was 28,650m2, 8,000m2

of which were in the Shannon Free Zone, with thebalance split almost evenly between the city centreand the suburbs.

With ever demanding tenants firmly seeking Grade Aquality space, there is a growing opportunity to meetthis demand. However, development viability may bean issue in some locations. In terms of constructionactivity, a total of just 5,000m2 and 10,100m2 were underconstruction in Cork and Limerick respectively in Q1’16,with nothing commenced in Galway during the quarter.As the economic recovery becomes more broad basedand spreads into the regions, the scale of newconstruction activity should pick up over theremainder of the year.

Upward pressure on rents expected tospur development activity in soughafter locations

There is limited Q1’16 information available on theindustrial market outside of Dublin apart from researchon the Cork market by Lisney. The latter reportedtake-up in Q1’16 at just 2,350m2, down from 5.750m2 inthe previous quarter. The available industrial buildingstock declined in the quarter to 206,600m2, bringing theoverall vacancy rate down to 16%. Most of the take-upis centred in the south suburbs (52% of the total). Withthe first warehouse facility under construction (andpre-let) in Little Island for some time and due forcompletion this year, Lisney state that new developmentwill be required in the Cork industrial market over thenext 12 to 18 months. There is currently upward pressureon rents, which rose in the south and east suburbs to€48-59 per m2, but were lower in the north suburbs,ranging between €38 and €48 per m2 in Q1’16.

16

CommercialRegionalMarketThe lack of Grade Aspace across thecountry is puttingoffice rents underpressure

OFFICESRegional Market Indicators

Q3’15 Q4’15 YTD

Q3’15 Q4’15 QoQ

TAKE-UP (m2)

3,570 4,880 16,490Cork*

5,300 1,550 22,300Cork

2,700 2,250 11,350Galway

16,900 5,700 26,450Limerick

VACANCY RATE (%)

CORK

15.4 15.6 +3.7ppCork Overall*

16.1 16.2 +2.3ppCork City Centre

15.0 15.2 +1.3ppCork Suburbs

GALWAY

4.6 4.5 +0.2ppGalway Overall

4.9 5.5 -0.3ppGalway City Centre

4.4 3.9 -0.4ppGalway Suburbs

LIMERICK

18.2 18.2 +0.5ppLimerick Overall

18.8 16.8 +0.9ppLimerick City Centre

13.7 14.5 -0.5ppLimerick Suburbs

26.7 29.7 0.0ppLimerick Shannon Free Zone*Source is Lisney. All other data from DTZ Sherry FitzGerald.

QoQ refers to the latest quarter on quarter percentage of percentage point change (Q1 on Q4). YTD refers to year to date i.e. the latest four quarters.

VACANT STOCK/AVAILABILITY (m2)

97,000 95,000Cork*

84,650 85,550Cork

13,900 13,600Galway

71,200 66,800Limerick

PRIME RENTS (€/m2)

250 250 +8%Cork

215 220 0%Galway

172 172

Q1’16

Q1’16

2,050

9,700

2,600

1,100

19.3

18.5

16.5

4.7

5.2

4.3

18.7

17.7

14.0

29.7

97,300

94,300

14,200

68,300

270

220

172 0%Limerick

17

The question on most minds as 2016 commenced waswould the record levels of investment in real estate inIreland in 2014 (c. €4.5bn) and 2015 (<€4bn) be sustainedin 2016? While it is too early to answer this question,Dublin continued to attract its share of real estateinvestment in the first quarter. Three agents reportedthat in the region of €740 million (KF, Lisney, CBRE) ofcommercial investment turnover was recorded in Q1’16;JLL was the outlier, reporting investment at €587 million.These figures are far apart and are each associated withdifferent views on the distribution of investment by valueacross the individual market segments: offices continuedto dominate, according to Lisney at 49% of the total(JLL 34%), although JLL suggest the highest proportionof investment was in the retail sector at 43% (Lisney38%).

Looking at some of the deals which transacted in the firstquarter, there was the Central Quay office building in theSouth Docklands which sold for €51.3 million, the Oval(office/retail) building in Dublin 4 which was reported tohave been sold for €140 million to a German real estatefund, and 8 Hanover Quay which was acquired by BNPParibas for €32 million. BNP Paribas also acquired thenew AirBnB headquarters building in Dublin Docklandsfor a reported €32 million. The most notable deals in theretail sector were outside Dublin and comprised theWhitewater Shopping Centre in Kildare, reportedly sold toa German fund for €180 million and the Golden IslandShopping Centre in Athlone, County Westmeath, sold toCredit Suisse for a reported €43.5 million.

While 51 deals were concluded (JLL), a total of 70 newinvestment opportunities came to the market in Q1’16with a combined asking price of €1.56 billion (Lisney).In terms of further investment opportunities, the mostsignificant retail asset remains on the market, which isthe Blanchardstown Centre which is being sold byGreen Property and Green Reit and is expected togenerate in excess of €1 billion. Green Reit is alsodisposing of the assets in the Glas Portfolio, whichconsists of over 69,677m2 of commercial space across58 commercial units. Four of the six properties are inDublin: the Arena Centre in Tallaght, which has 63apartments and a 119 bedroom hotel, the Ormond

Office Building in Dublin city centre, Classon House inDublin 14 and Parnell Car Park in Dublin 1. The portfolioalso includes the Globe Retail Park in Naas and theParkway Retail Park in Limerick. Other notable buildingsfor sale include the Hume House office redevelopmentin Ballsbridge for a price reported to be in excess of €40million and the office building at 3 Harbourmaster Placein the IFSC, on the market for over €40 million.

The JLL Investment Intensity Index notes that a numberof smaller cities are punching above their weight interms of their share of the global real estate investmentmarket. The March 2016 intensity index, which ranksglobal real estate investment in cities over the last threeyears, shows that Dublin ranked 15 out of the top 20most attractive investment destinations in relation totheir economic size. JLL describe these 20 “New WorldCities” as innovation-oriented small to medium-sizedcities with robust infrastructure, sustainability andtechnology credentials. In a separate survey from PWCand the Urban Land Institute on Emerging Trends inReal Estate in Europe, sentiment also remains positivetowards Dublin, which was ranked at Number 3 in aranking of investment prospects in 2016, down fromNumber 2 in 2015.

Deleveraging continues as Nama works through itsoutstanding debt balances by bringing a number of itsremaining loan portfolios to the market. These includethe disposal of the €4.7 billion Project Ruby andEmerald portfolios, for whom the preferred bidder,Oaktree, has been announced. Loans in Project Emeraldhave a par value of €2.5 billion secured against 236properties, 80 per cent of which is commercial property,20 per cent is residential. Project Ruby is made up of€2.2 billion of loans secured against 253 properties,about 11 per cent of which is residential. Preferredbidders are also close to being announced for ProjectAbbey, which is reported to have a par value of €700million, while Project Tolka, with par value of €1.5 billion,has also been offered for sale. These loan sales, whencompleted by Nama, are expected to bring thedeleveraging process close to a conclusion in 2016.

InvestmentMarketMajority of agents reportin the region of €740million of real estateinvestment in Q1’16

18

19

The UK will hold a referendum on whether to remainin or to leave the EU on 23 June 2016. This will be ahugely important decision for the British people, withmajor potential impacts on Irish business. Ibec stronglysupports continued UK membership of a strong,forward looking and globally competitive EU.

Given the potential risks of a Brexit to Irish business,Ibec has been actively supporting efforts to keep theUK in the EU.

In May, Ibec co-hosted an event on the legal implicationsof a Brexit and in recent interviews with the main mediaoutlets in London, Ibec CEO, Danny McCoy, set out therisks of a Brexit to Irish business as well as the impacton the wider EU. In April, Ibec released a report, TheUK referendum on EU membership: The impact of apossible Brexit on Irish business, which analyses thepotential impacts of a Brexit on Irish business.

In its report, Ibec identified six potential risks andassessed their impact on Irish business:

1. Trade risk: the impact of a Brexit on trade varies bysector. Trade flows could potentially be reduced by 20%with a greater impact on SMEs relying heavily on the UKmarket. In food and drink, Ireland and the UK are eachother’s largest export markets and these sectors wouldbe significantly impacted. A Brexit could also lead tothe introduction of a customs border and divergentregulations.

2. Freedom of movement: as Ireland is the only EUmember state that shares a land border with the UK, aBrexit could lead to the introduction of border checks.However, the Ibec report concludes that the likelihoodof movement of Irish people to the UK being restrictedin the case of a Brexit is low.

3. Exchange rate risk: this is the most immediateimpact of a Brexit and is already being felt by Irishexporters to the UK. Should a Brexit occur, the sterlingcould weaken by a further 10-15% moving closer toparity with the Euro in the aftermath of the referendum.Potential sell-offs of UK assets and capital outflowswould exacerbate the depreciation.

4. Investment impact: Within the EU, the UK isalready significantly ahead of other member stateswhen it comes to attracting FDI. A Brexit could bringopportunities and threats for Irish FDI. Ireland maypotentially gain from firms relocating from the UKalthough there would be significant competition fromother member states to attract this FDI. In the longerterm, the UK could become more attractive for FDI asit could introduce enhanced business and investmentsupports and would not have to comply with EUstate aid rules.

5. Regulatory divergence and customs impact:regulatory divergences between the UK and the EU willmake it more expensive for Irish companies to export tothe UK as a result of greater compliance costs andcustoms procedures.

6. Energy security: from a security of supplyperspective, Ireland would have to review the locationof its oil reserve from the UK to another EU memberstate. From a competitiveness perspective, Irish firmsmay be at a disadvantage if the UK decides todisregard State Aid legislation for the energy sector.

Under the EU treaties, the European Council has twoyears (with a possibility to extend) to agree a withdrawalagreement with an exiting state. As no state has everleft the EU, the timeline for an exit is uncertain. The UKgovernment estimates that it could take a decade ormore to negotiate an agreement leading to a protractedperiod of uncertainty for business.

The Ibec report concludes by looking at potentialmodels for the UK-EU relationship after a Brexit.The full report can be accessed here:www.ibec.ie/0/Brexit

SpecialReportIbec sets out the impactof a possible Brexit onIrish business

20

21

Since its inception in July 2015, the specialist real estatefinance team in AIB, the Property Lending Unit, hasbeen actively involved in some of the largest and mostcomplex real estate finance transactions to have takenplace in the Republic of Ireland during that time.

A change at the helm of the team took place in January2016 and Donall O’Shea is now Head of the PropertyLending Unit and is leading this specialist team oflenders along with Derek O’Shea who heads up allDevelopment lending, and with Ciaran Mooney leadingon real estate investment lending.

The team of specialist lenders, together with theirtechnical support and the imbedded team of CharteredSurveyors and Engineers, has grown significantlyand now stands at 27 and benefits from a range ofexperience in banking and relevant backgrounds.

The team is particularly proud of the “Deal of theYear”, as voted for by Finance Dublin, in relation tothe €400m facility extended by AIB to the O’FlynnConstruction group.

The team has been extremely active in the real estateinvestment market and has provided funding to bothnational and international customers on a variety ofprojects such as Regional and District shopping centresand retail parks in the Greater Dublin and Cork areasand their respective commuter belts as well asregionally dominant outlets.

The team has also successfully funded a number ofoffice buildings in the Dublin CBD and suburbs andfurther afield in provincial cities such as Galway. Manyof these projects have distinctive asset managementopportunities and the bank’s team engages fully withour customers in the development and pursuit ofthese value enhancing strategies.

As the Irish real estate investment landscape evolvesover the coming months and years, the bank is lookingfor innovative ways to support the domestic propertyand construction sectors.

Lending structures and debt packages available to bothdevelopers and investors have changed with banksmoving back to what would have been traditionally

associated with property lending models. This moretraditional senior debt financing is structured in a waythat gives banks appropriate returns for the risks theyare taking but is priced much lower than mezzanineand equity debt recognising the relatively lower riskbanks are taking.

While this change has led to a period of adjustment,investors and developers have been able to completetransactions using non-traditional sources of equity andstretch senior debt (sometimes referred to as mezzaninedebt). Interestingly, as the market moves on, theProperty Lending Unit in AIB is seeing more and moreproposals where there is no mezzanine provider withthe developers and investors having secured an equitypartner rather than an alternative source of debt.

Within AIB, there are lending teams in our nationwideBranch and Business Centre network who are ready tosupport local property and construction proposals andwith whom the real estate finance team work closely tosupport commercially viable schemes.

The bank’s Advisory and Specialised Finance team arealso positioned to work with our customers to providemezzanine and sponsored finance structures forsuitable deals in conjunction with the property lendingteam, and thereby delivering a complete solution fromwithin AIB to our customers’ funding requirements.

AIB is looking forward to supporting our customersin the ever changing and evolving real estate world.

Contact Details for the AIB Property Lending Unit areas follows;

Donall O’SheaHead of PropertyLending UnitTel; 01 772 0302Email: donall.a.o’shea@aib.ie

Ciaran Mooney,Head of Commercial Real Estate InvestmentTel; 01 7726355Email: Ciaran.e.mooney@aib.ie

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AIB’sSpecialistPropertyLendingUnitA key player in the Irishreal estate investmentmarket

Paul C McNamara FSCSI FRICSHead of Property Strategy &MI Property Lending UnitAIB Wholesale and Institutional Banking

Allied Irish Banks, p.l.c. is regulatedby the Central Bank of Ireland.

Derek O’SheaHead of Development& Specialist AssetsTel; 01 641 4431Email: derek.p.o’shea@aib.ie

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MethodologiesCBRE Ireland work off standard definitions across EMEA to ensure consistency and facilitate comparison. Our definition of vacant stock is all stock that is beingmarketed to let at the end of each quarter. Vacancy rate in turn is all available stock expressed as a percentage of overall stock at the end of each quarter. Grade Avacancy rate refers to all Grade A stock expressed as a % of overall stock at the quarter-end. Take-up refers to all leasing activity in the office sector whereas ourdefinition of take-up also encompasses sales in the industrial sector. We analyse Dublin offices by collating stats by the following postcodes/districts; Dublin 1/3/7,Dublin 2/4, Dublin 6/8, IFSC, North Suburbs, South Suburbs and West Suburbs. Our definition of city centre includes the postcodes of Dublin 1/3/7, Dublin 2/4,Dublin 6/8 and the IFSC while our definition of CBD is Dublin 2/4 only. Prime rent refers to the prime headline rent being quoted in the market at a particular point intime while prime yield refers to a net equivalent yield for a prime property let to a strong covenant on an FRI lease with 10 years unexpired and subject to openmarket reviews (upwards and downwards). Contact: marie.hunt@cbre.com

DTZ office take up records occupation of a building by a tenant. In a bid to avoid double counting and to accurately track net absorption rates, signed and reservedspace is excluded. Lease re-gears are also omitted. Industrial take up comprises letting and sales activity. Both office and industrial take up exclude investmenttransactions. The vacancy rate for the Dublin office market is calculated excluding Georgian accommodation. The vacancy rate for the Limerick office market iscalculated excluding Georgian accommodation. The vacancy rate for the Cork industrial market excludes the South East and Ringaskiddy. The Central BusinessDistrict incorporates the prime area of Dublin city and extends to the IFSC and the North & South Docklands and prime fringes such as Ballsbridge.Contact: marian.finnegan@sherryfitz.ie

In the Dublin office sector, the City Centre region is taken as – in the east, all areas from the Merrion Gates to East Wall Road; in the north, along the canal ring; inthe west, to Kilmainham; and in the south, along the canal to Ballsbridge and then all areas east of here to the Merrion Gates. For the purposes of this report, we havetaken the CBD to include the traditional core in Dublin 2 plus the docklands; those parts of Dublin 1 and Dublin 7 that are along the quays; and the parts of Dublin 4and Dublin 8 that are adjacent to Dublin 2. Contact: abrennan@lisney.com

The information is based on JLL primary data which is collected and analysed on a quarterly basis. Data is evidence-based and uses information from actual markettransactions during the quarter. Office stock comprises all Dublin stock constructed post-1960 and therefore does not include Georgian properties. Office demand isrecorded by using gross take-up levels for all deals (lettings and sales). This includes expansions, relocations, and new occupiers. JLL industrial take-up records theletting and sales activity by occupiers of space that has been released onto the market. It does not include land sales, investment transactions or lease re-gears.Prime rents represent the highest achieved rents for the best-quality (Grade A) properties in the core locations that were recorded for that quarter.The yields reported are based on evidence from transactions and reflect the prime yields for each sector. Contact: hannah.dwyer@eu.jll.com

The Sherry FitzGerald Barometer of second-hand house prices is an analysis based on a repeat valuation method. This index has been in place since 1996 for Dublinand 1999 for the national market. It analyses trends in the second hand market only, based on an analysis of a basket of properties in all of our locations nationwide.Each basket of properties was chosen based on a weighted profile of properties in each location. The basket extends to over 1,500 properties. The price of a sampleof properties that sold in a particular period is re-valued each quarter and these valuations are used to construct a house price index for existing houses. Repeatvaluation of a fixed sample of properties ensures that the mix does not change between time periods and it also provides live up to date market analysis, without anylag which an analysis of mortgage drawdowns is subject to. It also facilitates an analysis of both the active and inactive elements of the market thereby giving a fullerpicture of market deflation. Contact: marian.finnegan@sherryfitz.ie

The statistics are based on properties advertised on Daft.ie for a given period. The regressions used are hedonic price regressions, accounting for all available andmeasurable attributes of properties, with a Cooks Distance filter for outliers. Indices are based on standard methods, holding the mix of characteristics constant,with the annual average of 2012 used as the base. Average sample sizes are 89,000 (sales listings) and 5,800 (sales transactions) and 10,000 (rental listings). For moreon the methodology, please see www.daft.ie/research. Contact: media@daft.ie

The data are based on actual asking prices of properties advertised on MyHome.ie with comparisons by quarter over the last eight years. Our main indices have beenconstructed with a widely-used regression technique which adjusts for change in the mixture of properties for sale in each quarter. Our method is designed to reflectprice change independent of this variation in mix. Contact: angela@myhome.ie

The prime residential market is defined as the top 5% of the residential market by market value. The index is constructed by a repeat valuation process which is un-dertaken on a quarterly basis from a basket currently containing thirty properties. Office take-up is defined as when contracts have been signed. The city centre en-compasses all of Dublin 1 and Dublin 2, from Barrow Street in the east of Dublin 4 to Ballsbridge to the south and west along to Grand Parade in Dublin 6 and southto include Cuff Street in Dublin 8.Prime office rents are theoretical headline rent for prime office space let long-term to a grade A tenant and based on comparable let-ting evidence for that quarter allowing for normal incentives. The prime office investment yield is a theoretical value for which a prime office building let long-term to aGrade A tenant would sell for based on comparable investment activity for that quarter.

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Property Industry Ireland (PII)84/86 Lower Baggot Street, Dublin 2, Ireland.Tel: +353 (0)1 605 1500Email: info@propertyindustry.ie

AIB Group HeadquartersBankcentre, Ballsbridge, Dublin 4, Ireland.Tel: +353 (0)1 660 0311

DKM Economic ConsultantsOffice 6 Grand Canal Wharf, South Dock Road,Ringsend, Dublin 4, Ireland.Tel. +353 (0)1 667 0372

DKM have compiled the data presented on theresidential and commercial property market from arange of sources, including the Department of theEnvironment, Community and Local Government(DECLG), the Central Statistics Office (CSO), theBanking and Payments Federation Ireland (BPFI),Daft.ie, MyHome.ie, the Private Residential TenanciesBoard (PRTB), and the property agents listedon the previous page. DKM would like to acknowledgethe cooperation of the agents in producing thispublication. Contact: info@dkm.ie