IREL AND INVESTMENT REPORT 2020 - savills.ie
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Savills World Research - Ireland Investment
IRELAND
INVESTMENT
R EP O RT 2020
savills.ie
SAVILL S RESE ARCH | DOMESTIC ECONOMY |
DOMESTIC
ECONOMY
Despite the uncertainties presented by Brexit and a slower-growing of employment gains and rising
wages has led to a 5.3% rise in real
Figure 2: General Government Balance
global economy, Ireland’s economy continues to outperform. aggregate household disposable
incomes.
2,000
0
The strong labour market has -2,000
inevitably benefited the public -4,000
Figure 1: GDP Growth Across the EU, Q4 2019 Output rose by 5.5% in 2019, making finances. Jobs growth and higher
Ireland the fastest growing economy wages contributed to an 8% rise -6,000
€m
in the EU with an expansion rate of in income tax receipts. Meanwhile -8,000
more than twice the EU average. declining unemployment paved
Experienced watchers of Ireland’s the way for reduced social welfare
-10,000
6
economy will appreciate that the spending. Both factors fed through -12,000
activity of multinational firms to an Exchequer Surplus of €647m -14,000
tends to inflate standard economic in 2019 - the first time since 2007
5 performance metrics such as GDP. -16,000
that a surplus has been run in two 2012 2013 2014 2015 2016 2017 2018 2019
However more nuanced indicators successive years (Figure 2). Source: CSO / Dept. of Finance
confirm a substantive expansion
4 in real economic activity; Modified Continued improvement in the
Final Domestic Demand, which public finances has underpinned Figure 3: Net Initial Yields, Prime Assets
excludes the impact of aircraft the creditworthiness of the Irish
7
leasing companies and on-shored sovereign. Ireland’s debt is A-rated
3 intellectual property, rose by 3% in by all of the main ratings agencies.¹
% Y/Y
6
2019. Meanwhile total employment And recent bond sales provide 5
rose by a remarkable 3.5% in the further insights into external
2 full calendar year. Allowing for a perceptions of the Irish economy; 4
%
modest upward drift in productivity The NTMA raised €4bn of 15-year 3
this suggests an underlying money on 8th January 2020 at a
2
expansion of around 4% per annum, rate of 0.45%. Demand for this debt
1 including a strong pick-up in Q4. was strong and broadly-based with 1
In terms of jobs growth Ireland €20bn of orders. More recently a 0
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
remains third in the EU league table further €500m was raised from the
0 and this has triggered a positive sale of six month Treasury Bills at a
yield of -0.535% with a 2.9:1 bid /
Ireland
Hungary
Malta
Estonia
Lithuania
Poland
Cyprus
Croatia
Portugal
EU 27*
Slovakia
Spain
Denmark
Slovenia
Czechia
Netherlands
Belgium
France
Latvia
Austria
UK*
Sweden
Greece
Germany
Italy
chain-reaction within the economy. Offices
Prime CBD Yields
Industrial
Prime Yield
Shopping Centres
Prime Yields
Unemployment fell from 5.6% to cover ratio. Warehouse Retail High Street PRS
Prime Yields Prime Yields Prime Yields
4.7% during 2019 and now stands Source: Savills Research
at its lowest point since early 2006.
This has led to a more competitive
Monetary Conditions the time of writing in early March, economic outperformance has
Source: Eurostat labour market resulting in earnings With inflation persistently subdued markets are pricing-in a further led to strong occupier market
growth of 3.6% per annum. In a low across the global economy all of the 75bp reduction. fundamentals which continue to
inflation economy, this combination major monetary authorities remain make it a target for this capital.
* Bulgaria, Finland, Luxembourg and Romania unavailable at time of writing. The Bank of England followed suit
firmly in accommodative mode. As shown in Figure 3 this has kept
on 11th March, cutting its base rate downward pressure on prime yields
In America the Federal Reserve
by a half point. This will put pressure with PRS assets being particularly
reduced rates by 25bp three times
on the ECB to also cut rates targeted and experiencing a 25bp
Definitions and Scope between July and October last
further having already reduced its compression in 2019. Given the
year. Further reductions were
This report covers property investment in Ireland during 2019. The scope generally extends to transactions deposit rate and announced the monetary environment, tight
already expected in 2020 but the
involving income-producing property assets. As such loan sales and transactions involving properties resumption of Quantitative Easing occupational conditions and the
emergence of Coronavirus has
without a lease agreement in place (including some forward commitment deals) are generally excluded. in September after a 9-month pipeline of product to be marketed,
accelerated this. In a decisive move
The exception to this is the Private Rented Sector (PRS). Investors are currently pricing-in negligible void hiatus. This monetary environment Savills believes that there is scope
the Fed delivered a 0.5% cut on
risk and therefore there is no discount for vacant possession. In this context block purchases of both has naturally driven capital into for PRS, office and logistics yields
3rd March - its first inter-meeting
vacant and income-producing residential properties are included within the analysis. real assets. And Ireland’s ongoing to harden further in 2020.
cut since the finacial crisis. And, at
¹ https://www.ntma.ie/business-areas/funding-and-debt-management/investor-relations/credit-ratings
2 3
SAVILL S RESE ARCH | MARKET ACTIVITY |
MARKET
ACTIVITY
€7.42bn of investment property traded in Ireland during 2019 – by far the
highest level of turnover ever recorded in the Irish investment market.
To put this in perspective, even if Figure 4: Investment Turnover 2002 – 2019 Figure 6: Number of Portfolio Sales is important to note that the entire
Project Eblana (the €1.5bn Green REIT of Project Eblana was coded as a
mega-deal)² is excluded, turnover for 8,000 40 ‘mixed use’ sale in our statistics. Had
the year exceeded the previous 2014 7,000 the office assets within that portfolio
35
record by 31% (Figure 4). As outlined been counted in the offices category
6,000
above, this was ultimately driven 30 then offices would certainly have
by the ‘lower-for-longer’ monetary 5,000 retained its accustomed position in
25
dynamic, Ireland’s continued 4,000 the pecking order.³
€m
economic outperformance, and a 20
comparatively attractive yield profile.
3,000 Two other big shifts in the
There were 194 separate transactions 2,000 15 composition of sales in 2019 were;
in 2019, 22% fewer than in 2018 (a) the increased share of mixed use
1,000 10
and 35% fewer than 2014 when the assets in turnover, which obviously
number of deals peaked at 298. 0 5 reflects the Eblana effect, and (b)
2004
2006
2009
2008
2003
2005
2002
2007
2010
2014
2016
2019
2018
2013
2015
2012
2017
the continued decline of retail as
2011
0
Investment By Lot Size 2014 2015 2016 2017 2018 2019
a proportion of overall investment
Source: Savills Research
Turnover (Ex. Eblana) Eblana 10 Year Average
Source: Savills Research
turnover. At a global level retail has
Given the combination of increased been somewhat out of favour due
turnover and fewer transactions, Figure 5a: Number of €50m+ Figure 5b: Investment Trends By Lot to uncertainty about the impact of
Transactions Size Investment By Sector 32.4% of the year’s spend, compared
the average deal-size more than with office investment of €2.01bn e-commerce on retailers’ business
doubled from just over €15m in For only the second time in a decade (27%). This pattern undoubtedly models and a lack of consensus about
35 45 45
2018 to €38.3m in 2019. This offices was not the largest investment reflects the unprecedented depth of the alternative business models that
reflects two things; Firstly the scale 30
40 40
sector. Back in 2016 the sale of demand for private rented residential might be most successful in the long
of opportunities that came to the Blanchardstown and Liffey Valley run. Nonetheless with the population
Average Deal Size (€m)
35 35 stock in Ireland, and the scale of
Top 3 % of Turnover
market last year. The most obvious 25
30 30 shopping centres relegated offices pipeline apartment development still expanding rapidly, and with low
example is Project Eblana, but the 20 25 25 to second place, and in 2019 PRS which has provided forward- unemployment feeding through
Cedar and XVI portfolios (€530m investment of €2.4bn accounted for purchase opportunities. However, it to meaningful wage growth, the
20 20
and €285m respecitvely), were also 15 fundamentals of the Irish consumer
very large transactions. Indeed, even 15 15 Figure 7: Investment Turnover by Sector economy are very attractive. As a
10
without these megadeals, 2019 was a 10 10 result there continues to be strong
100%
year of generally larger deals with 33 5 5 5 investor demand for high-quality
90%
transactions of over €50m – the most 0 0 0 retail assets. Notably, the absolute
ever recorded (Figure 5a). As a result 2012 2013 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
80% spend on retail property increased
the top three transactions actually Average Top 3 Percent
70% by 26% in 2019, from €517m in 2018 to
counted for a smaller percentage Source: Savills Research Source: Savills Research
60% €651m. Therefore the declining share
of total turnover than in 2016 when 50% of turnover was due to the bumper
Blanchardstown Town Centre and 40% year for investment generally, rather
Liffey Valley Shopping Centre traded these buyers generally prefer lot sizes continued in 2019 with 17 portfolios than a flight from retail per se.
30%
(Figure 5b). of €25m and above, and the sweet- trading. Nonetheless the scale of
spot for PRS investors is probably in the three biggest portfolios – Project 20% A more detailed analysis of
The second reason for the increase the €80-€100m range. Eblana, The Cedar Portfolio and the 10% investment within the major real
in transaction sizes relates to the XVI Portfolio meant that portfolio 0% estate segments is provided on the
identity of the active buyers. Foreign As shown in Figure 6 the number sales accounted for 43% of market 2012 2013 2014 2015 2016 2017 2018 2019 following pages.
institutions accounted for 36% of of portfolio sales has steadily turnover by value. Offices Retail Industrial Mixed Hotel Other Student Accommodation Multi-Family
purchases in 2019, compared with declined in recent years as the Source: Savills Research
just 2% in 2013 and nil in 2012. Given post-crisis bulk deleveraging has
the indivisible costs of due diligence been worked through. This trend
³ In Q1 2019 Henderson Park, the buyer of Project Eblana, put a package of 5 of the CBD offices it acquired as part of that portfolio back on the
² Mostly comprising Dublin offices and logistics assets. The indicated value is gross, before purchase costs. market, reportedly seeking a price in excess of €400m.
4 5
SAVILL S RESE ARCH | PRS |
PRIVATE
RENTED SECTOR (PRS)
PRS investment more than doubled in 2019, from €1.1bn to €2.4bn In total 5,884 private rental units
were block-purchased in 2019,
Figure 9: Percentage of PRS Units Purchased Outside Dublin
(excluding student accommodation and mixed use schemes with a twice the 2018 figure and 10 times
more than were bought in 2017.
25
substantial residential content). This means that block-purchasers
accounted for 8.8% of all the
20
residential properties that were
15
bought in Ireland last year. A total
of 125 blocks were purchased in 52
%
separate transactions.⁴ 10
5
PRS Investment By Location
When multi-family investment 0
first emerged in 2012 post-crisis
2014
2016
2019
2018
2013
2015
2012
2017
deleveraging was providing
plentiful opportunities for buyers to Source: Savills Research
acquire standing assets in Dublin.
However as the cycle matured Figure 10: PRS Purchases in The Greater Dublin Area, by Location and Size
blocks were bought-up and fewer
assets became available to buy.
This had several effects. Firstly
it temporarily restrained investor
activity, causing the overall volume
of PRS investment to contract
between 2015 and 2017. Another
consequence was that investors
began looking beyond Dublin for
Beechwood Court, part of The XVI Portfolio which Savills sold on behalf opportunities, and the Ex. Dublin
of Marathon Asset Management to IRES REIT for approx. €285m share of PRS purchases rose to 23%
in 2017 (see Figure 9).
This is by far the biggest spend on Figure 8: Number of PRS Units Purchased
private rental assets ever recorded However apartment development
in Ireland and firmly consolidates 6,000 in Dublin has picked-up strongly
the status of PRS as a mainstream since then; 2,654 apartments were
investment sector. In a low interest 5,000 delivered in the capital in 2019
rate environment investors are – an increase of 55.3% on 2018.
targeting PRS because it is perceived 4,000 There is also a strong pipeline of
to provide diversified and secure construction. Planning permissions
income. And capital is particularly 3,000 were granted for 9,164 units the first
attracted to Irish PRS by a three quarters of 2019 – an annual
perception that rents and occupancy 2,000 increase of 119%. This has facilitated
are underpinned by an acutely an uplift in PRS investment and has
undersupplied market. Indeed this is 1,000 allowed investors to resume their
confirmed by the data - According focus on Dublin. Ninety-six percent
to figures from property portal 0 of the units that bulk-traded in 2019,
2012 2013 2014 2015 2016 2017 2018 2019
Daft.ie, only 4,610 rental properties incorporating 5,637 dwellings, were The detailed location of the PRS
were available to let nationally as of Source: Savills Research in the capital and 25.3% of all the blocks trading in the Greater Dublin
31st December 2019, with 2,023 of residential properties that traded Area is mapped in Figure 10.
these in Dublin. This implies sub- rise – latest official data from the in the year to September 2019, while in Dublin last year were block-
2% vacancy rates in all locations. Residential Tenancies Board show in Dublin rent inflation is running at purchased by PRS investors.
As a result rents are continuing to that average rents increased by 8.2% 6.6% per annum.
⁴ Including PRS assets traded within mixed portfolios.
6 7
SAVILL S RESE ARCH | PRS |
PRS Deal Sizes Figure 11: Average PRS Transaction Value IMAGE
The average PRS transaction has
50
increased from €6.64m in 2017
to just over €48m in 2019. This 45
reflects two factors. On one 40
hand the number of units being 35
traded within each transaction has
30
increased since 2017, partly because
€m
25
of forward-purchase opportunities.
But it also reflects a sharp increase 20
in the average price being paid per 15
unit by PRS investors. 10
Figure 12 shows that, when 5
multifamily investment first 0
2012 2013 2014 2015 2016 2017 2018 2019
emerged in 2012, PRS units were
Source: Savills Research
trading at a discount to overall
Dublin apartment prices. This
continued through to 2017. However Figure 12: Price Trends in Dublin Apartments: PRS vs Mainstream Market
from 2018 the price being paid Figure 12
for apartments by PRS investors 450,000
overtook the market average. The 400,000
mean price being paid per unit by 350,000
investors leapt by 82% in 2018 and
300,000
rose by a further 3.5% in 2019 to
250,000
€408,678. The bald figures show Dublin Landings PRS, North Wall Quay, Dublin 1 – Forward Sold by Savills in 2019
€
that PRS units are now trading for 200,000 on behalf of Ballymore & Oxley to Greystar for approx. €175.5m
23% more than apartments in the 150,000
mainstream Dublin sales market. 100,000 Figure 14: Forward Purchased PRS Units as Proportion of Total Block Purchases
Some of this reflects a mix effect -
50,000
PRS investors tend to be focused on 6,000
better serviced and more affluent 0
2012 2013 2014 2015 2016 2017 2018 2019
locations and are buying newer, 5,000
higher specification stock through Avera ge Pri ce per PRS Unit (€) Ave Apa rtment Pri ce Dublin €
forward purchase arrangements. Source: Savills Research 4,000
Nonetheless investor appetite for 3,000
this product, which derives from Figure 13: Average Proportion of Units Trading Within Schemes
the continued low interest rate 2,000
100
environment and the attractiveness
90
of Dublin’s occupational market, 1,000
has led to a like-for-like premium 80
for block-purchased apartments
% of Total Units
70 0
2012 2013 2014 2015 2016 2017 2018 2019
compared with individually 60 Units Forward Purchased Units Purchased as Standing Assets
purchased units.
50 Source: Savills Research
40
Fractured Ownership 30 ‘Additionality’ development, and the naturally standing assets, it did not feature.
With standing PRS assets becoming 20 higher peak-debt levels required to However as that stock was bought-
harder to source from 2015, one A common refrain in the housing build apartments, there is a strong up investors turned their attention
10
response was for investors to debate is that institutional investors argument that many of these units to development assets and the
broaden their search beyond Dublin.
0 are crowding out first time buyers. would have been delayed or may forward-purchase route eventually
2012 2013 2014 2015 2016 2017 2018 2019
But another was to acquire units in The fact that PRS investors have been not have proceeded at all without became dominant in 2019. Since the
Source: Savills Research
blocks with fractured ownership. paying more for their properties on the presence of institutional start of 2012 just under 28 percent
As a result, the number of units average undoubtedly feeds into investors willing to pre-commit. of block-bought PRS units have
recovered to 56%. Looking ahead,
traded as a proportion of the total this. However a closer analysis been forward purchased. However
this is likely to increase further as Figure 14 shows how the trend of
units within the schemes where reveals that 3,110 of the 5,884 PRS in the period since 2016 that figure
standing assets will account for forward-purchases has developed
transactions took place fell from units purchased in 2019 (53%) were has risen to 43%.
a smaller share of the units being in recent years. In the early stages
100% in 2012 to 34% in 2017. Since bought through forward-purchase
traded. of the recovery, when there were
then, facilitated by development arrangements. Given the scarcity
opportunities, the ratio has and cost of finance for speculative plentiful opportunities to buy
8 9
SAVILL S RESE ARCH | PRS |
Buyer Nationality Figure 15: Breakdown of PRS Units Purchased by Irish and Non-Irish Buyers Figure 17: Forecasts of the RTB Dublin Rents Index 2020 - 2022
Another narrative in the housing 6,000
debate is that Ireland’s residential
stock is being bought-up by foreign 2,200
5,000
investors. Figure 15 shows that
nearly three quarters (74%) of the 4,000
2,000
PRS units that have been block-
purchased in Ireland since the 3,000 1,800
start of 2012 have been bought by
Index: Q4 2007 = 100
foreign capital. However the graph 2,000 1,600
also shows that the proportion
1,000
of units being bought by foreign 1,400
investors has tapered off in recent
0
years, with just under one third of 2012 2013 2014 2015 2016 2017 2018 2019 1,200
the units that were block-bought
Units Bought By Irish Units Bought by Non-Irish
in 2018 and 2019 being acquired by
Source: Savills Research 1,000
Irish institutions such as IRES Reit,
Irish Life Investment Managers and
Figure 16: Dublin Apartment Planning Permissions 800
Urbeo, and by local authorities and
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
2019Q1
2019Q3(f)
2020Q1(f)
2020Q3(f)
2021Q1(f)
2021Q3(f)
2022Q1(f)
2022Q3(f)
housing associations.
7,000
Savills’ view is that foreign
6,000
ownership of residential assets
Source: Savills Dublin Index Nominal 95% Lower 95% Upper
is both consistent with Ireland’s 5,000
place in a globalised economy, and
brings many benefits. Most of the 4,000
Looking ahead, there has been Table 1: Top 10 Multifamily Deals in 2019
foreign capital flowing into Irish PRS a surge of planning permissions
3,000
is institutional, long-term money. for Dublin apartments. Given Property Location Sold Price €m Units sold
This provides tenants with greater 2,000 the locations it is likely that some
security of tenure as the owners are of these will not materialise as 16 Locations,
XVI Portfolio Q2 285 815
less likely to sell-out. It may also 1,000
PRS developments. However, Dublin & Cork
lead to a better product and better shorter term leading indicators 2 Locations,
0 Project Vert Q4 217 385
tenant amenities as the building e.g. commencement notices and
2004Q3
2002Q3
2003Q3
2005Q3
2006Q3
2007Q3
2008Q3
2009Q3
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q3
2014Q3
2012Q3
2013Q3
2015Q3
2016Q3
2017Q3
2018Q3
2019Q3
2010Q1
2011Q3
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
2011Q1
South Dublin
owners are motivated to reduce units under construction suggest
tenant turnover and therefore to Source: CSO
continuing PRS output growth Dublin Landings PRS Dublin 1 Q3 175.5 268
invest more. over the next 18 months and this
will further contribute to a more
Project Venus Re-
balanced occupational market. Various Locations Q2 150 600
Rental Growth And Outlook Taking this and demographic
trade
Rental growth as measured by its peak for the current cycle. On as it excludes Purpose Built Student trends into consideration Savills The Davitt Dublin 12 Q4 127 265
the official RTB index is currently the other hand, there has been Accommodation (PBSA), the is forecasting that the RTB Dublin
running at 6.6% y/y, reflecting tight a strong supply response to the completion of partially built units rents index will rise by just over 4% Heuston South
conditions in Dublin's occupational housing shortage; The narrowest and the refurbishment of previously in 2020 and by a further 1.5% - 2.0% Dublin 8 Q2 125 266
Quarter
market. measure of residential development uninhabitable dwellings. Factoring- in 2021.
– ‘New Dwelling Completions’ rose in all of these elements Savills Palmerstown,
St. Edmunds Q4 125 266
However it is clear that the by 18.3% in 2019 and now stands Dublin 20
estimates that total supply in Ireland
residential market, across all at 21,241 - 4.6 times higher than in rose by over 25,000 units last year, Dun Laoghaire,
Fairways Q2 108 214
tenures, is gradually becoming 2013. The number of completions and by 8,000 units in Dublin. This Co. Dublin
more balanced. On one hand this in Dublin was just under 7,000 has contributed to the slowdown The Quarter at Citywest, Dublin
is because population growth, units. Notably the New Dwelling in both House Price Inflation and Q3 94 282
Citywest 24
while still strong, flattened over the Completions metric understates rental growth.
course of 2019 and may have passed the true level of additional supply Mount Argus, Harolds
Dublin 6w Q3 93 179
Cross
10 11
SAVILL S RESE ARCH | OFFICES |
OFFICES
Economic Backdrop Figure 18: Growth in Dublin Office Based Employment vs All Other Employment Occupational Market Q1, and Amazon pre-letting 15,805 shown in Figure 20 ICT continues
sq m at 2 Charlemont Square in Q4. to be the dominant sector, but the
As outlined in the introduction, 10 The factors set out above have Two direct consequences of this are traditional sources of public sector,
employment in Ireland rose by a 8
contributed to rapid growth in the illustrated in Figure 19. Firstly, the professional services and financial
remarkable 3.5% in 2019. Reflecting scale of some multinational firms’ average letting size has increased services also remain active.
6
the changing nature of the Irish office requirements in Dublin. sharply. Secondly, overall take-up
economy and Dublin’s dominance as 4 Examples of very large lettings to has surged with lettings exceeding Serviced office providers account
a primate capital city, 22,900 of the 2 global tech companies in 2019 include 300,000 sq m in 2019 for the third for less than 2% of Dublin’s modern
% Y/Y
79,900 net additional jobs (28.7%) 0 Salesforce pre-letting 43,664 sq m time in five years. office space. However in flow
were office-based roles in Dublin. at Spencer Place in Q1, LinkedIn pre- terms they represented 38,115 sq m
2007Q4
2009Q2
2008Q3
2010Q4
2016Q4
2019Q4
2007Q1
2013Q4
2014Q3
2018Q2
2015Q2
2017Q3
2012Q2
2010Q1
2016Q1
2019Q1
2011Q3
2013Q1
-2
Indeed, as shown in Figure 18, Dublin letting just under 40,000 sq m at Looking more closely at the sub- of take-up in Dublin in 2018 – 11% of
office employment has consistently -4
Wilton Park in Q4, Facebook leasing sectors, the pattern of take-up has the year’s total (they are the major
outperformed the overall labour -6 over 16,000 sq m in Sandyford in broadly followed jobs growth. As component of ‘Real Estate’ take-
market, rising by a cumulative 36.2% -8 up). However take-up by these
Figure 20: Dublin Office Take-up By Sector, 2019 flex space providers contracted by
since the start of 2010 – double the -10
(still respectable) 18.0% recorded in almost three-quarters to 10,195 sq
Dublin Office-Based All Other Employment
all other sectors and locations. Source: CSO
ICT m in 2019, resulting in the sector’s
share of take-up falling to 3.4%. The
14% biggest flex space provider in Dublin
Closer analysis shows that this Figure 19: Total Take-Up and Average Letting Size – Dublin Office Market
Financial Services
growth in Dublin office-based is WeWork, which has been behind
4%
jobs has been broadly based, 400,000 2,000 2%
Professional, Technical Services 77% of all serviced office lettings
with strong expansion across in the Dublin market since Q4 2017.
Average Letting Size (Sq M)
1,800 Admin. & Support Services (Public Sector)
various service industry sub-
350,000
This company suffered a failed IPO in
Total Take - Up (Sq M)
1,600 51%
sectors including Information and 300,000 11%
Admin. & Support Services (Private Sector)
2019 and a number of mooted leasing
Communications Technology (ICT),
1,400
deals in Dublin fell through later in
250,000
Finance, Insurance and Real Estate 1,200
5% Industry the year. It will be interesting to see
(FIRE), Public Administration and 200,000 1,000 how this area of the market develops
Professional Services. Nonetheless 150,000
800 11% Real Estate in 2020 and beyond. On one hand
ICT has led the way both in terms 600
the serviced office offering is clearly
of the total numbers employed 100,000
400
Other meeting an occupier demand for
– currently 72,600 in Dublin, and 50,000
Source: Savills Research
increased flexibility – reflecting
200
the rate of employment growth – shorter business planning cycles.
62% since the start of 2012. We
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
0
Figure 21: Serviced Office Take-Up in Dublin And, at least in Dublin, the entities
believe this reflects three things. Total Take-Up Average Letting Size
taking desks from these providers
On one hand, Ireland retains many 14,000
are often reputable multinational
Source: Savills Research
of its traditional advantages as a brands. At the same time the
12,000
location for mobile international failure of WeWork’s IPO may have
capital. These include the youngest has led to geographic peripherality to reform the global corporation 10,000 made investors wary of serviced
demographic in the EU27 (providing becoming much less of an issue for tax regime. In particular BEPS Mk. office providers and, to date, this is
8,000
an inexpensive, tech-savvy labour Ireland; The rise of internationally I has encouraged multinationals, reflected in an approximately 50bp
Sq M discount on yield.
6,000
pool),⁵ use of English as the main traded services means that being including tech companies, to
spoken language, close cultural ties on the western edge of Europe is no demonstrate a material physical 4,000
with the US investor base, and a longer the barrier it once would have Another interesting development is
presence in Ireland to match the
strong track record in successfully been to running a global business
2,000 that, while Dublin was traditionally
onshoring of intellectual property
hosting Foreign Direct Investment from Ireland. Finally, as discussed a speculative office market, pre-
assets. 0
lets have become a bigger feature
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
(FDI) projects. In addition, the later in this report, Ireland has been
digitalisation of the global economy a beneficiary of OECD-led efforts since the start of the current cycle
Serviced Offices Ex WeWork WeWork
in 2014. As shown in Figure 22 they
Source: Savills Research accounted for 52.1% of all the office
⁵ Ireland currently has the highest proportion of people in the EU aged under 24 (33.1%). This compares with an EU average of 25.8%.
12 13
SAVILL S RESE ARCH | OFFICES |
space leased in Dublin during 2019 Figure 22: Pre-Lets Share of Total Take-Up Investment Market Activity Figure 24: Vacancy Rate, Dublin Offices
– the highest proportion ever. Two
As outlined above, €2.01bn of
factors are feeding into this trend. On 400,000
24
capital was invested in Irish office
the demand side, the increased scale 22
350,000 assets in 2019, excluding the Project
of the office space requirements that
Eblana portfolio which contained a 20
are now emerging in Dublin means 300,000
large offices element. Even without 18
that occupiers have to plan ahead 250,000
Sq M
these assets, this total exceeded the
because their business space needs 16
200,000 previous (2015) record spend on
cannot neccessarily be fulfilled in
%
14
Irish office property by 13 percent.
the speculative market. Meanwhile, 150,000
12
on the supply side, the continued 100,000 Not counting Eblana, there were 53 10
tightness of development finance office property transactions during
50,000
has made it harder to speculatively the year, with an average deal size of
8
develop office buildings, meaning 0
€37.85m – approximately 21% lower 6
Q4 2010
Q4 2014
Q4 2016
Q4 2019
Q2 2010
Q4 2018
Q4 2013
Q4 2015
Q4 2012
Q2 2014
Q4 2017
Q2 2016
Q2 2019
Q2 2018
Q2 2013
Q2 2015
Q2 2012
Q2 2017
that many developers have to wait
Q4 2011
Q2 2011
2014 2015 2016 2017 2018 2019
than in the PRS sector. Five of the
for a pre-let to get onsite. Pre-Lets Standard Lettings sales were portfolios entirely made
Source: Savills Research up of office buildings. The largest Source: Savills Research
The emergence of pre-lets has led
of these was The Cedar Portfolio,
to a lag between lettings, which are
Figure 23: Gross and Net Office Development in Dublin, 2014-2019 a collection of 11 prime buildings Table 2: Purchases of Purpose-Built Dublin Office Stock by Year
counted in the current period, and
mostly in Dublin’s CBD, which
net absorption which will be counted 200,000 Sq M No. Assets Average Sq M
Blackstone bought from Starwood
later, when the building completes
in Q4 via an ICAV structure for 2013 267,471 66 4,053
and immediately becomes occupied 150,000
a whisker less than €530m. But 2014 406,200 84 4,836
stock. This statistical quirk led to
further office buildings were traded
absorption substantially lagging 100,000 2015 216,624 57 3,800
as part of mixed-asset portfolios,
take-up in 2019. But, given the scale
Sq M
including the 20 offices formerly 2016 219,903 70 3,141
of recent office-based jobs growth 50,000
owned by Green REIT that traded as 2017 146,935 57 2,578
and the quantum of pre-let space
part of Project Eblana in Q4. When
currently under construction, this 0
2018 186,858 50 3,737
all of these assets are unpackaged
will unwind with a strong recovery in
a total of 90 individual office 2019 351,845 68 5,174
absorption over the next 18 months. -50,000
buildings traded across Ireland in 1,795,836 452 3,973
Turning to the supply side of the -100,000 2019 – 9 fewer than in 2018.
market, new office construction in 2014 2015 2016 2017 2018 2019
Eleven of the office buildings that However Dublin was again the main modern business space ever traded
Dublin has been remarkably well Removals Completions Net Development
Source: Savills Research traded were located outside Dublin, focus of investment activity, with 79 in Dublin, and we have to go back
contained considering the booming
with 7 of them in Cork. One of buildings trading in total. Of these, to 2014, when bank deleveraging
economy. Last year just 108,000
these, One Albert Quay, is a 15,514 seven were period offices (Georgian was in full swing, to find a year
sq m of new space was delivered in older stock was demolished in 2019, down to 8.6%. As ever there is
sq m Grade A city centre building houses), and details are unknown when more office stock changed
Dublin, and gross completions have meaning that net development was significant variation by location and
which was bought by Henderson for a further four. However the bulk hands. Incorporating last year’s
not exceeded 200,000 sq m in any an even more modest 59,166 sq m building quality with, for example,
Park as part of the Eblana portfolio. of the income-producing offices figures some 452 buildings have
year since the current development for the year. Indeed, since this cycle just 3.1% of stock in the South
Meanwhile Yew Grove REIT that traded, 68 properties, were been traded since this investment
cycle began. By contrast, started, 570,154 sq m of new space Docklands area currently available.
continued with its regional strategy modern (i.e. post 1960) purpose- cycle began, comprising 1.8m sq m
completions of around 300,000 sq has been delivered gross. But after
The overall vacancy rate has picked- by purchasing Building 2600 at built blocks. of modern office space (Table 2).⁷
m were seen on multiple occasions demolitions the net increase in stock
up slightly from the 8.1% low-point Cork Airport Business Park. Other This means that 46% of Dublin’s
during the 2000s. has only been 252,950 sq m – just In total these sales comprised
recorded a year ago, reflecting the regional assets traded in Limerick, office stock has been sold in the last
44.3% of the gross development some 351,845 sq m of space. This
Significant removals of older space lag in absorption discussed above. Shannon and Galway. seven years.
figure. was the second largest amount of
for redevelopment have, to a However, vacancy remains well
considerable extent, offset the new The coexistence of strong demand below its 11.1% equilibrium rate and,
supply coming onstream. Figure 23 and well-contained supply in recent as such, rents are well underpinned
shows that almost 50,000 sq m of years has pushed the vacancy rate at current levels.⁶
⁶ Savills estimated the Natural Vacancy Rate for Dublin offices at 11.1% using econometric techniques in November 2019. Details are available by request. ⁷ Although this count includes some buildings that have traded more than once.
14 15
SAVILL S RESE ARCH | OFFICES |
Table 3: Modern Office Sales in 2018, by Location, Size and Grade Vintage Of Stock Trading
Sales Sq M Ave Sq M % Grade A % Grade B % Grade C The average age of the purpose-
built blocks that traded was only
CBD 17.1 years in 2014, when receivership
(Including 34 180,340 5,304 64.9 23.5 11.6 sales provided investors with the
Docklands) opportunity to access prime modern
assets at distressed prices. As
City Fringe 4 13,471 3,368 52.6 1.5 45.9
illustrated in Figure 27, these assets
gradually became harder to source
Suburban 27 143,766 5,325 51.2 31.5 17.3 in 2015 and 2016, leaving investors
to target slightly older properties.
Other 3 14,268 4,756 0.0 65.3 34.7 However there was a step-change
in office construction in 2017. This
created opportunities for investors
Total 68 351,845 5,174 56.3 27.5 16.2
to buy new stock and resulted in
a sharp decline in the average age
of sold buildings to just 16.3 years.
Figure 26: Dublin Office Sales 2019 by Location and Grade
Since then the flow of new office
completions has eased, causing the
average age of buildings trading to
edge back up to 17.6 years. Within
this there is significant variation by
location, however. In the CBD and
Charlemont Exchange, Dublin 2 – Sold by Savills on behalf of Ballymore & Oxley for approx. €145m
docklands, where new development
is concentrated, the average age of
the buildings that traded in 2019
Modern Office Investment 2 postcode in 2019, but notably less 68 ‘modern’ Dublin offices that was 16.4 years.
By Location office investment in other Dublin changed hands, Table 3 sets out
postcodes and the regions. This the amount of space that traded In our 2017 report we commented
reflects the increased availability per location, and the Grade of that on the emergence of forward-
Looking initially at the geographical
of prime Dublin 2 properties arising accommodation. funding as means of acquiring
distribution of all office purchases,
from the sale of the Cedar and Dublin office stock. Fewer such
including ex. Dublin stock and
Eblana portfolios. The map provides the precise deals are now taking place as office
period buildings in the capital,
location of these 68 trades, by developers have improved access
Figure 25 shows that there was a
Focusing more closely on the building size and grade. to development finance through
renewed focus on the prime Dublin
traditional sources.
Figure 25: Number of Office Assets Traded in Ireland By Location
45
40
Figure 27: Average Age of Modern Office Blocks Trading in Dublin
35
30 22
25
%
20
20
18
15
Years
16
10
14
5
0 12
2013 2014 2015 2016 2017 2018 2019
10
Dublin 2 Dublin 4 Dublin 18 Dublin 1 Other Postcodes Outside Dublin 2014 2015 2016 2017 2018 2019
Source: Savills Research
16 17
SAVILL S RESE ARCH | OFFICES |
Looking Ahead Table 4: Top 10 Individual Office Deals – 2019
Several events contributed to Deal Size (Sq m) Price (€m) Sold Location
uncertainty in the office investment
market during 2019. However some Multiple
Cedar Portfolio 53,264 530.0 Q4
of these concerns have eased since Locations
the turn of the year. Undoubtedly Five Hanover Quay,
15,136 197.0 Q3 Dublin 2
the avoidance of a crash-out Brexit Dublin 2
in January was positive for Ireland.
However it now remains for the UK Nova Atria 25,529 165.0 Q3 Dublin 18
to negotiate a trade deal with the
EU. The nature of this agreement The Reflector, Hanover
11,122 155.0 Q4 Dublin 2
will define the ultimate impact of Quay, Dublin 2
Brexit on the Irish economy and, by
extension, the market for business Charlemont Exchange 8,442 145.0 Q1 Dublin 2
space. Looking further afield, the
‘Phase 1’ trade deal signed between No. 3 Dublin Landings,
the US and China on 15th January 10,550 115.0 Q4 Dublin 1
Dublin 1
also brings some stability to the
Portfolio at Citywest
global trade environment. 34,281 105.0 Q2 Dublin 24
Business Campus
At the same time, however, there
Block B, Elmpark Green 9,322 53.1 Q4 Dublin 4
is continuing momentum behind
global efforts to address corporate Buildings 3,000 & 4,000,
tax avoidance, and this may have Westpark Business 18,580 50.0 Q3 Co. Clare
implications for Ireland. The first Campus, Shannon
round of the OECD’s BEPS project
Heuston South Quarter,
has, on balance, benefited the Dublin 8**
7,081 50.0 Q2 Dublin 8
Dublin office market. In line with
the ‘Permanent Establishment’
concept multinationals seeking *Table includes mixed-use buildings with large office element
to offshore intellectual property
** Offices element only
assets in Ireland are required by
BEPS to demonstrate substance in
the local economy. In practice this
includes employing more people in could feasibly have to redistribute factors would present challenges
Ireland, which may have contributed some of their Corporation Tax to Ireland’s competitive advantage.
to some of the very large office (CT) receipts to countries where In saying all this, however, Ireland
lettings that we have seen in Dublin the goods and services are being has a formidable track record in
over recent years. However the consumed. Pillar II proposes a attracting FDI over many years and,
BEPS project is now moving into a minimum effective CT rate. The for that reason alone, is seen as a
new phase. There are two pillars level at which this might be set safe option. Furthermore Ireland
to BEPS 2.0. Under the first pillar and the method of application are has navigated its way through
a ‘New Nexus’ concept has been currently being discussed. But it BEPS very effectively to date and,
floated which would link taxing could potentially result in Ireland aside from the business friendly
rights less to physical presence, and having to raise its effective CT rate. tax regime, offers many other
more to the geography of sales. It could also encourage countries attractions to mobile international
This would present challenges for which currently have higher CT capital.
smaller countries like Ireland which rates to target this minimum. Both
The One Building, Grand Canal Street, Dublin 2 – Sold by Savills on
behalf of Jones Investments to BNP Paribas REIM for approx. €49.5m
18 19SAVILL S RESE ARCH | RETAIL |
RETAIL
In the latter part of 2019 some Table 5: Consumer Economy Dashboard
weakness was evident in the ‘soft
Latest Latest % 1 Year Ago %
indicators’, including consumer Indicator
Publication Change Y/Y Change Y/Y
sentiment. This probably reflected
a ‘Brexit effect’ which now appears Household Disposable
Q3 2019 +6.2 +6.4
to have passed – sentiment Income
has recovered somewhat since
Household Net Worth Q3 2019 +4.9 +7.8
October. Whether or not this dips
again as negotiations on the UK
trade agreement kick-off remains Retail Sales Jan 2020 +3.7 -0.4
to be seen. But, in any event, a
key message seems to be that the Average Gross Hourly
dip in sentiment towards the end Q4 2019 +3.6 +3.2
Earnings
of 2019 did not significantly alter
consumers’ behaviour. Total Employment Q4 2019 +3.5 +2.3
While there is no doubting the
Outstanding Consumer
strength of the consumer economy, Jan 2020 +3.3 +3.6
Credit Balances
a question mark remains about
the extent to which consumer Real Personal Consumption
Q4 2019 +2.0 +2.8
demand is translating into occupier Expenditure
demand for retail property. There
Overseas Trips to Ireland Q3 2019 +0.1 +7.6
has been considerable debate
about the impact of e-commerce
on the performance of retail Real VAT Receipts Jan 2020 -2.3 +10.9
property. Although there has been
some moderation since the rapid Live Register Feb 2020 -7.3 -16.3
Crescent Link Retail Park, Derry, Sold by Savills for £30m expansion phase in 2015/2016,
Central Bank data indicate that
Consumer Sentiment Jan 2020 -13.5 -10.5
Economic Backdrop Figure 28: Growth In E-Commerce Spending Using Debit and Credit Cards e-commerce expenditure continues
to grow strongly (Figure 28).
Sources: CSO, CBI, KBC Bank Ireland/ESRI, Dept. of Finance.
The fundamentals of the consumer
economy remain very strong. 35 This suggests that traditional
retailers are conceding market Figure 29: Annual Retail Sales & Price Growth by Sector (3-mth Mov. Avg. Jan 2020)
Household disposable incomes rose
by 6.2% in the year to Q3 2019 due share to e-tailers which clearly
6
to the fact that more people were at
30 creates a direct headwind for the
work and that workers were earning, sector. But a less obvious challenge Bars
4
on average, 3.6% more than a year from online retailing is that the Newsagents
Motors
25 internet creates almost perfect 2
earlier. Given continued low inflation
Price Growth %
Grocery
and interest rates this has translated pricing transparency, forcing Auto
0
traditional retailers into cutting
% Y/Y
directly into a strong uplift in real 20
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
living standards. As a result ‘hard’ prices to remain competitive. This -2 Hardware
indicators such as VAT receipts and pressure is clearly visible within Dept.
Pharmacy
-4 Furniture
retail sales are performing strongly. the Irish retail sector. As shown Clothing
15
There has also been an expansion in Figure 29 price discounting is -6
Specalist Food
in consumer credit which is positive evident in most retail segments Electrical
as it feeds directly into households’ (dots below the line). Unless offset -8
10
spending power and also as it by volume sales growth this can
Jul-17
Jul-18
Jul-16
Jul-19
Jan-17
Jan-18
Jan-16
Jan-19
Apr-17
Oct-17
Apr-18
Oct-18
Apr-16
Oct-16
Apr-19
Oct-19
Jan-20
-10
signifies confidence among banks contribute to tighter margins and
and consumers themselves that rent-affordability challenges. -12
they can sustain the debt. Source: Central Bank of Ireland Sales Volume %
While these pressures apply
generally, the impact of online Research, CSO
Source: Savills Research,
competition may differ across retail
20 21SAVILL S RESE ARCH | RETAIL |
Shopping Centre for €175.5m in Q4 Figure 32: Number of High Street Shops Traded, by Location
by local buyer Davy. Indeed Davy
bought half of the shopping centres 70
that traded last year, accounting for
65% of total spend in the sector. In 60
addition to the St. Stephens Green 50
Centre Davy acquired regional
assets in Athlone, Mullingar, Cavan 40
(part share) and Cork. Two other
30
notable shopping centre sales in
Dublin during the year were Irish 20
Life Investment Managers’ purchase
of IPUT’s 25% share in the Pavilions 10
Shopping Centre in Swords for 0
€71m and German syndicate AM 2012 2013 2014 2015 2016 2017 2018 2019
Alpha’s purchase of the Northside
Phase 2, The Park Carrickmines, Dublin 18 – Savills advised IPUT on the off-market acquisition of this asset for approx. €95m Shopping Centre for €49.2m. Dublin Ex. Dublin
Source: Savills Research
Figure 30: Retail Rents % Change Y/Y sub-sectors. An emerging wisdom Retail park investment fell from
in recent years is that prime high €267m in 2018 to €87.5m last year.
30 street locations should be more Table 6: Top 5 Retail Deals – 2019
Over €1bn has been spent on retail
resilient to the online threat as park assets since 2013 and, with very
20 consumers still need a place to Property Location Sub Sector Quarter sold Price, €m
limited new development to supply
physically inspect and experience investor appetite, it was perhaps
goods – even if their purchases St. Stephens Green Shopping
10 inevitable that this would eventually Dublin Q4 175.5
Shopping Centre Centres
subsequently happen online. Prime lead to thinner trading. Two of the
% Y/Y
0 locations are more suited to this three parks that did sell were in The Pavilions (25% Shopping
Dublin Q1 71
‘showroom’ function because they Share) Centres
Aug-08
Apr-00
Feb-06
Aug-03
Jun-04
Jun-09
Aug-98
Oct-02
Oct-07
Dec-06
Jun-99
Apr-05
Cork – IPUT bought Mahon Retail
Oct-97
Dec-96
Feb-01
Aug-18
Apr-10
Feb-16
Aug-13
Jun-14
Dec-01
Jun-19
Oct-12
Oct-17
Dec-16
Apr-15
Feb-11
Dec-11
-10
help to communicate positive brand Park in Q2 for €56m while German
values. A number of leasing deals Mahon Retail Park Cork Retail Parks Q2 56
discount retailer LIDL bought West
are currently agreed on Dublin’s City Retail Park in Ballincollig for
-20
Grafton Street and the latest MSCI €6.5m towards the year end. Northside Shopping Shopping
Dublin Q4 49.2
data for both Grafton and Henry Centre Centres
-30
Streets indicate an improving rental 62 high street shops traded back
Overall Henry / Mary St. Grafton St.
Source: MSCI growth story (see Figure 30). in 2015 when distressed sales were 7-9 Henry Street Dublin High Street Q1 44.27
injecting liquidity to this market.
Figure 31: Share of Retail Investment By Sub-Sector Market Activity But the number of units trading has
Source: Savills Research
now contracted for four successive
100% In total just under €651m was years as these assets have been
90% spent on income-producing retail bought-up and locked-in to long
property in 2019 – equating to 9% of year in a row, no properties traded A notable trade in the
80% term ownership. Only 15 high street on Grafton St. - Dublin’s other prime neighbourhood shopping sector
the year’s total investment turnover. shops of over €1m traded across
70%
This represents a 26% increase on retailing thoroughfare – due to no was the purchase of the Tesco
Ireland last year, the fewest since units becoming available. store in Gorey by French real estate
60%
2018. 2012. The biggest deal of the year
50%
investor Corum AM for €20.75m.
%
was German Institution DWS’s Another trend illustrated in Figure
As shown in Figure 31, shopping
40% purchase of 7-9 Henry Street in 32 is the increasing regional bias in
centres were the dominant target
30% Dublin for €44m in Q1. Illustrating high street store sales. Four units
for retail investors. These accounted
20% the illiquidity that exists at this in Cork sold during the year for an
for 62% of all the retail stores that
upper end of the market, this unit aggregate €28.26m. Five other
10% traded during the year, with a total of
was only the 10th to be sold in the regional assets in Galway, Limerick
0% €400.75m spent on 10 assets. The
2012 2013 2014 2015 2016 2017 2018 2019 Henry St. / Mary St. area in the last and Tralee made up the residual
biggest retail deal of the year (and
decade. Moreover, for the second investment in this sector.
Shopping Centre High Street Neighbourhood Shopping Other Retail Parks the seventh largest overall) was the
Source: Savills Research
Q4 purchase of St. Stephens Green
22 23SAVILL S RESE ARCH | INDUSTRIAL & LOGISTICS |
INDUSTRIAL
IMAGE
& LOGISTICS
Economic Backdrop Figure 33: Gross Flow of Goods Imports and Exports Inevitably, with vacancy contained
at such low levels, there has been
The demand for industrial and 20 upward pressure on rents. The
logistics space ultimately reflects the Savills Industrial and Logistics
extent to which physical goods are 15
rent index rose by 10% in 2019
being stored and moved within the and prime rents now stand at
economy. In turn this depends on the approximately €110 per sq m per
10
quantity of goods being produced annum. Looking ahead this is set
% Y/Y
and consumed, and the degree of to continue and we expect to see
geographical separation between 5 rents edging-up further in Q1 2020.
production and consumption. Savills has recently extended its
National accounting practice nets 0 rent forecasting repertoire to the
the value of imports (an outflow logistics sector and the econometric Dublin Airport Logistics Park, St Margaret’s Road, Co Dublin – Savills advised
of money from the Irish economy) models show continued strong DWS on the off-market acquisition of various logistics units for approx. €41m
-5
against the value of exports (a flow rental growth, albeit at a gradually
2019Q4
2018Q4
2017Q4
2019Q3
2019Q2
2018Q3
2018Q2
2017Q3
2017Q2
2019Q1
2018Q1
2017Q1
of money into Ireland). But, in a moderating rate, in 2020 and 2021.⁹ Figure 34: Logistics Take-Up 2009-2019
small open economy like Ireland, Source: CSO
the additive total of gross goods Investment Market Activity 300,000
imports and gross exports can be
Table 7: Logistics Economy Dashboard
a useful indicator of demand for Just under €263m was spent on 250,000
supply-chain services, including Latest Latest % 1 Year Ago % income-producing industrial and
Indicator logistics property during 2019 – a
logistics property. Publication Change Y/Y Change Y/Y 200,000
new record for the Irish market
Sq M
As would be expected in an Road Freight Volume Dublin Q3 2019 5.2 10.6 by over 10% compared with the 150,000
outperforming economy, this previous peak in 2014. There were 18
measure shows that there has been Gross Flow of Goods Trade Q4 2019 4.0 14.9 industrial / logistics deals during the 100,000
sustained strong growth in the real year, somewhat down on previous
value of inbound and outbound Industrial Production: years. However the bite sizes were 50,000
goods flows over the last three years. Q4 2019 3.2 9.2 larger with an average value of
Traditional Sectors
just under €14.6m per transaction. 0
While such financial measures can This reflects two factors. Firstly, 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Population Growth Dublin Q4 2019 1.7 1.5
be useful, they track the demand for driven by the Ireland growth Source: Savills Research H1 H2
warehousing space imperfectly. This story and by investor perceptions
is because, even in a bad economy, Population Growth Ireland Q4 2019 1.3 1.2 that e-commerce will create an Figure 35: No. of Industrial & Logistics Transactions and Average Transaction Size
people can substitute low-value upside for logistics, demand for
purchases for more expensive buys, Road Freight Volume: warehousing assets has seen yields 35 18
with no impact (or even a positive Q3 2019 1.2 11.8
National harden by 75bp since 2017, driving 16
impact) on the physical volume of up values. Secondly, six of the year’s
30
14
goods being consumed. Therefore transactions involved portfolios of
it is useful to supplement our Occupational Market This fed through to net absorption 25
12
Transactions
of 111,738 sq m. Deconstructing this, multiple logistics buildings.
logistics economy dashboard with 20 10
€m
Reflecting increased movement of 70,320 sq m of the absorption was
more tangible measures such as goods within the economy, occupier In addition, to the pure logistics
facilitated by new development, 15 8
marine and airport freight volumes, demand for industrial and logistics portfolios, a number of buildings at
with 31,551 sq m accommodated 6
road freight volumes, goods vehicle property was strong in 2019. In Horizon Business Park also traded 10
by the consumption of previously 4
registrations and population growth total 296,924 sq m of industrial as part of the Eblana mixed-asset
vacant space.⁸ As a result the 5
(a good proxy because everybody and logistics space was taken-up in portfolio. Taking all of these into 2
vacancy rate edged down to 2.5%
needs ‘stuff’). This also shows a Dublin during the year – 3.8% down account 54 industrial and logistics 0 0
at the end of 2019. 2012 2013 2014 2015 2016 2017 2018 2019
broadly positive picture of logistics on 2018, but 11.9% above the long- facilities traded during the year.
Transactions (lhs) Ave Deal Size (rhs)
demand. term average.
Source: Savills Research
⁸ The residual of 9,867 sq m reflects data revisions. ⁹ Savills’ econometric rent forecasting models now cover offices, retail, residential and logistics. Further details are available by request.
24 25SAVILL S RESE ARCH | INDUSTRIAL & LOGISTICS |
Figure 36: Dublin Logistics Sales 2019, by Location, Size and Decade of Logistics Investment By
Construction
Location
51 of the 54 units that traded in
2019 were in Dublin. Of these, 14
were in the traditional South West
corridor, with four in the North West
and two in the South East. But
most of the assets that traded, 31
in total, were located in the North
East corridor near Dublin Airport.
Partially this reflects the location
of the product that happened to
come to the market with several
portfolios of assets in this location
trading, including multiple unit sales
in Dublin Airport Logistics Park,
Horizon Business Park, Butterly
Business Park, Mygan Business Park
and Century Business Park.
The detailed location of the units
that traded in 2019 is indicated in
the map opposite.
Table 8: Top 5 Industrial Deals, 2019
Property Location Sold Price €m
Donabate, North Co.
Tesco Distribution Centre Q4 160.0
Dublin
The Compass Portfolio Various Q4 30.8
Dublin Airport Logistics Park Portfolio North East Dublin Q3 18.5
Mygan Business Park Portfolio North East Dublin Q3 11.2
Unit 1 Stadium Business Park North West Dublin Q2 10.5
1 Molesworth Street. Prime city-centre office sold in
Q4 2019 as part of the Project Eblana Portfolio
26 27SAVILL S RESE ARCH | INDUSTRIAL & LOGISTICS | | INVESTMENT BY BUYER TYPE |
INVESTMENT BY
BUYER TYPE
Figure 37: Investment Turnover by Buyer Type Figure 38: Offices and PRS Share of Institutional Spend on Irish Property
80
100%
70
90% 60
50
80%
40
%
70%
30
60% 20
50%
10
0
40% 2013 2014 2015 2016 2017 2018 2019
Offices PRS
30%
Source: Savills Research
20%
buyers accounted for all three average for all other buyer types - Its highest share since 2013, with
10% institutional purchases of logistics (which itself is heavily inflated by almost €3bn spent. However, half
assets in 2019. Henderson Park’s acquisition of of this figure was accounted for by
Project Eblana). Institutions and the Eblana deal. If we remove this
0% Perhaps unsurprisingly, given their REITs were on the buy-side of 24 of outlier from the analysis the pattern
2012 2013 2014 2015 2016 2017 2018 2019 funding model and investment last year’s 33 €50m plus deals. of trading by buyer type conforms
objectives, the average deal size more closely with the expected
Institutional / REIT Confidential / Unknown Private Individual / Syndicate Other Prop Co. Private Equity
for institutional buyers in 2019 was The Private Equity share of pattern at the current stage of the
€66.4m - well above the €27m investment spending rose to 40% cycle (Figure 39).
Source: Savills Research
Figure 39: Investment Turnover By Buyer Type, Excluding Eblana
For the sixth year in a row institutions However, there has been a big predictable income due to a stable 100%
and REITs were the biggest buyers shift in what the institutions are occupier base with low levels of
90%
of Irish investment property in buying. As shown in Figure 38, tenant turnover.
2019. Their spending amounted to office investments continue to 80%
€3.65bn – accounting for 49% of absorb just under one third of the Interestingly, institutional investors
spent almost €190m on industrial 70%
the year’s total turnover. Indeed capital deployed by these players.
the institutions have accounted for However there has been a surge of and logistics properties during 2019 60%
50% of aggregate spending since institutional money flowing into the – the most capital that they have
50%
2012, and have deployed €14.4bn PRS sector in recent years and, for ever deployed into this sector. This
of capital during that period. the first time in the market’s history, represents a vote of confidence in 40%
Undoubtedly this reflects the fact residential assets accounted for the domestic economy as, given 30%
that Ireland is now firmly established both the largest share and an overall Ireland's location, the demand for
warehousing space will always 20%
as a prime investment location, the majority of institutional spending on
country risk premium has tightened, Irish property. Institutional demand depend on local consumption 10%
and pricing of property assets has for Irish PRS reflects the experience and production. Providing an
0%
hardened in line with the strength of of investors in continental Europe interesting insight into how Ireland
is perceived externally, foreign 2012 2013 2014 2015 2016 2017 2018 2019
occupational markets. that such assets deliver secure and
Institutional / REIT Confidential / Unknown Private Individual / Syndicate Other Prop Co. Private Equity
Source: Savills Research
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