Mega Deals, PRS, Asian Investors And Record Occupier Demand — The Trends That Defined Dublin In 2018
The predictions were pretty positive at the beginning of this year, but the market has managed to exceed expectations in 2018, particularly in office occupier take-up and the overall value of investment deals.
“The performance of the Irish commercial property market in 2018 has surprised on the upside with transactional activity in both the occupier and investment sectors higher than anticipated at the beginning of the year,” CBRE Executive Director, Head of Research Marie Hunt said.
Here are the key trends that defined 2018 in Dublin
2018 was the year of the mega deal
Mega deals have been a big part of the market in 2018. Hunt said nine transactions valued at more than €100M were signed in the first nine months of the year, compared to five deals of this scale in the whole of 2017.
BNP Paribas Real Estate Managing Director and Head of Investment Kenneth Rouse said there has been an average of four or five €100M-plus deals each year during this property cycle. “In 2018 we predict this figure to rise to at least 12 across the office, PRS and retail sectors,” he said.
“This serves to highlight that investors have real confidence in Irish economic fundamentals and are not deflected by global uncertainties to take on this level of concentration. Also that developers have responded to market requirements delivering commercial property to meet the very highest international standards which are highly sought after.”
Last waterfront site sold for €180M as development deals fly
One of the biggest transactions of the year was the sale to U.S. investment company Colony Capital of a 4.6 acre-site — 'Project Waterfront' — on North Quay Wall. Billed by selling agent Savills as the last remaining waterfront development site in the docklands, it has planning permission for 300K SF of offices across four blocks, as well as 420 apartments in two residential buildings.
At €180M the sale represented the biggest land deal of the year to date — it was also substantially higher than the €120M guide price.
Also interesting was the depth of the pool of bidders, according to Savills Director Mark Reynolds. “It was very competitively bid,” he said. “And that wave of capital is still looking to deploy and get into the Dublin commercial market — both the PRS and office sectors.”
Google shelled out €300M for Bolands Quay
Another mega deal was Google’s acquisition of the 396K SF Bolands Quay for €300M. The company plans to retain the 301K SF office element for its own use and appoint a letting agent to manage the rest of the space, which includes 46 apartments, cafés and cultural space.
“It represents the largest sale to an owner occupier in the city,” Reynolds said. “It’s the second largest commercial development under construction in the city at the moment after the children’s hospital. And it’s showing further confidence — if we needed to be shown it — of the U.S. tech sector in the Dublin market.”
Reeling in Korean money at Dublin Landings
In November, South Korean REIT JR AMC was revealed as the purchaser of Dublin Landings 2 for €106.5M. The eight-storey, 100K SF building is being developed by Ballymore and Oxley Holdings and is fully let to WeWork on a 20-year lease with no break options.
“The fact that it was a large lot size of more than €100M was interesting in its own right but the fact that it was purchased by a Korean buyer — a new entrant to the Irish market — is particularly interesting,” Hunt said.
The year of Asian investor
In fact, 2018 can also be described as the year that interest from Asian investors in Dublin — anticipated for the last couple of years — started to convert into actual deals.
“The most significant amount of international capital flows is still coming from Europe but 2018 announced the arrival of Asian investors to the Irish market,” Rouse said. “Some of this can be explained from the dislocation effect from Brexit as Ireland displays similar characteristics and traits to the U.K. commercial real estate market.”
Rouse noted that Dublin also represents strong relative value in comparison to most other capital cities in western Europe. “Asian investors will in all likelihood account for 15-20% of total investment spend for 2018 which is quite astonishing coming from a nil position in 2017,” he said.
Apart from JR AMC’s acquisition of Dublin Landings, other deals involving Asian investors in 2018 include Hong Kong-based Hutchison Group’s purchase of the 226K SF Eir HQ building for €176M and Comer Group’s sale of the Beckett Building to Seoul-headquartered Kookmin Bank for €101M.
Facebook signed up to what will be Dublin's biggest ever office letting
In November, Facebook ended months of speculation by confirming that it has agreed to lease a 14-acre site in Ballsbridge that will provide more than 650K SF of office space and capacity for up to 5,000 more employees.
“Once completed, this will be the largest office letting ever signed in the Dublin market and will prove hugely transformative for the office market in the Ballsbridge area,” said Hunt.
A year of record take-up
2018 has been a record year for office take-up, with 4.5M SF of deals, according to JLL figures. This compares to 3.6M SF in 2017 and is way ahead of the five-year average of 3.1M SF and the 10-year average of 2.3M SF.
“Strong activity levels have been driven by large occupiers, particularly the tech sector, with tech representing approximately 45% of space occupied this year," JLL Director of Research Hannah Dwyer said. "This includes occupiers like Facebook, Google and LinkedIn who have taken over 1.1M SF between them this year.”
Aside from Facebook, big deals done during the year include HubSpot’s 20-year lease of 112K SF at Hibernia’s 1SJRQ; the 150K SF pre-let of Iput’s One Wilton Park to LinkedIn; and IDA Ireland agreeing 112K SF lease at Three Park Place.
Salesforce, meanwhile, is understood to have reserved 500K SF at Ronan Group and Colony Capital’s Spencer Place development in the docklands.
WeWork did what WeWork does
It has been a big year in general for coworking in Dublin. Hunt said more than 12% of overall take-up in the year to the end of September involved flexible providers.
WeWork has been particularly active, having officially opened its first location in Dublin at Iveagh Court on Harcourt Road as recently as June. According to Dwyer, the company has taken 450K SF across six deals in the last 18 months.
PRS went mainstream
There may have been a lot of talk about PRS and BTR in 2017, but this was the year that the big deals started to happen.
Dwyer said PRS will account for around 30% of this year’s transactions, compared to 5% last year. “Good quality PRS assets that come onto the market are being met with significant investor interest and strong pricing," she said. "Yields for good PRS are now comparable with prime offices at 4%.”
“There seems to be no dissipation of demand for big volume PRS projects in the city,” Reynolds said. “And there are various international funds and pension funds that are trying to get into the market.”
“PRS and BTR investments are in strong demand from a variety of investors and local first movers will face strong competition for new opportunities from the pools of international capital that are now hunting to build scale in this segment of the Irish market,” HWBC Managing Director Tony Waters said.
PRS deals done during the year include Round Hill Capital’s forward purchase of 216-unit scheme in Northwood, Dublin 9 for a figure believed to be around €84M; Carysfort Capital’s acquisition of the 120-unit Six Hanover Quay for €101M; the €161M sale of the Grange scheme — of 274 residential units and a development site — to Kennedy Wilson and Axa Investment Managers for €161M; and Irish Life Investment Managers acquiring 262 apartments at Fernbank in Churchtown for €138.5M.
Meanwhile, the residential element of Dublin Landings is currently on the market through Savills. There is no guide price on the two-block, 268 apartment scheme, but it is expected to achieve over €200M.
CBRE research released in September indicates that over €5B of institutional money is targeting the residential investment sector in Ireland.
Retail holding its own
The retail market has performed well and many shopping centres across the country are nearing capacity, according to Waters. “This performance has not been reflected in investment markets where sentiment has been more muted for all but the best quality assets, and an increasing interest in retail from investors is something I expect next year,” he said.
One of these quality assets was Westend Retail Park in Blanchardstown, which was sold by Green REIT to DSW, Deutsche Bank’s investment arm, for €148M. Rouse said that deal “underscores that best in class schemes remain the most efficient channel of distribution for retailers and will always be sought after from an investment perspective”.
Industrial activity has been exceptionally strong in 2018, according to Lisney Director Aoife Brennan. This year’s take-up in Dublin is likely to be just under 3.2M SF, about 20% ahead of last year’s 2.6M SF and ahead of the long-term average (last 25 years) of 2.8M SF.
Brennan said the sale of the former HP campus in Leixlip, Kildare was one of the largest industrial transactions in Irish history. BlackRock and O’Flynn group paid around €50M for the 195-acre campus. The biggest deal in the Dublin region was the sale of the former Lufthansa/CRH premises on the Naas Road (220K SF) on 16 acres.
“Both sales are an indicator of current investor appetite for industrial product,” she said.