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Distressed Asset Sales And Price Realism Reignite The Dublin Office Market

There's nothing like a bit of distress to get a market moving again. 

After a quarter in which Dublin’s office investment market ground to a halt, the city’s commercial real estate sector is hoping for a reawakening as administrators and sellers bring more stock to the market.

And there are fledgling signs that the extended standoff between buyers and sellers over the valuation of the city’s offices could be easing, opening the way for opportunistic and value-add funds. Administrators and receivers have to sell assets, which brings price discovery to a market in the dark over where values sit.

After few deals in Q1, new offers could help boost Dublin's office market.

“I would note that a big factor in low transaction volumes was low levels of stock on the market, but there are still investors looking to buy,” Colliers Head of Research Kate Ryan said of a first quarter that saw just €162M invested in Ireland across 20 deals.

“Our investment team view is that for these distressed office sales, it will most likely be opportunistic investors, and they will be looking for scale and may be expanding existing office portfolios. The best properties in the best locations will be most attractive.”

Totemic of a new pragmatism among sellers is The Beckett building, previously owned by Korean investors. Meta leased it until last autumn, but it is now under the control of Grant Thornton after partners at the firm were appointed receivers by German lender Helaba. It came to market at just half its previous €80M valuation, according to a report in The Times.

There is also the highly anticipated sale on behalf of receiver Grant Thornton of 11 Dublin properties owned by developer Johnny Ronan’s Ronan Group Real Estate. The portfolio is being offered to the market by joint agents JLL and Cushman & Wakefield at a cumulative guide price of €150M.

The 11 properties include the 117K SF Grade A Connaught House on Burlington Road, Dublin 4, which is expected to sell for about €80M, plus Kingram House, Fitzwilliam Place, fully let to the Irish Medical Council and expected to secure around €10.75M. Also in the portfolio is 6/7 Harcourt Terrace, Percy Exchange, Ballsbridge, Kilmore House, Spencer Dock and St. James's Place, Adelaide Road.

“The diverse mix of these investments provides a significant depth of quality properties to an asset-starved market and we expect will attract a high level of interest,” receivers John Moran of JLL and Aidan Gavin of Cushman & Wakefield said in a statement launching the sale.

A fund managed by Davy Real Estate is seeking €26.5M for a prime office on Lower Hatch Street in Dublin city centre. The sale of 20 on Hatch would provide a net initial yield of 8.1%, according to selling agent Savills, which represents a 34% drop in the €40M valuation Davy’s Irish Property Fund gave the building in 2018.

Similarly, Derek McGrath’s Core Capital is thought to be closing in on the purchase of 5-9 South Frederick Street in Dublin’s south city centre for about €10M. That would represent a nearly 17% discount on the €12M agent CBRE had been seeking when it brought the property to the market for owner and former occupier New Ireland Assurance last October.

Meanwhile, French fund Inter Gestion REIM has made its second investment in Ireland’s commercial real estate market after paying €16M for an office and retail property at 21-24 Capel Street in Dublin city centre, 17% less than the €19.2M agent JLL had guided when it offered it for sale in May of last year. 

CBRE said notable receivership sales are ongoing and that feedback from investors across Europe had indicated that secondhand offices on a selective basis are pricing attractively, with many investors, particularly those with equity, believing that now is the right time to acquire.

“Despite the low level of investment spend this quarter, there has been a definite lift in sentiment across European real estate investment markets,” CBRE Ireland Head of Research Colin Richardson said as the brokerage released the Q1 figures. “Considering ongoing large-scale sales processes in the Irish market, we expect transaction volumes to be considerably higher in Q2 and H2.” 

Likewise, BNP Paribas Real Estate said office investment is expected to recover somewhat in the second quarter, with the €39M sale by State Street Global Advisors of 40 Molesworth Street to German investor Deka Immobilien expected to close during the period. The asset is also understood to have attracted bids from Macquarie Asset Management, HIH Real Estate and MEAG.

“The sale of 40 Molesworth Street could be a catalyst for the market, which has been starved of comparable evidence,” BNP Paribas Real Estate Director and Head of Research John McCartney said. “Assuming it happens, this should settle nerves and hopefully provide vendors and investors alike with confidence to progress deals.”

Office leasing activity was quiet in Q1, but it appears to be picking up.

Despite encouraging signs that a new cycle may be starting, occupancy levels and new demand are another cause for concern. The latest research from JLL Ireland tracking Dublin’s office market in Q1 showed low levels of leasing activity in the opening quarter, with 196K SF agreed across 31 deals.

This was down 44% from the previous quarter and 63% below the five-year quarterly average, while the average deal size fell to 6,346 SF, a decline of 56% from the pre-pandemic five-year annual average.

JLL pointed to upcoming activity, with the volume of space reserved standing at 800K SF, a quarterly increase of 35.8% and 20% above the average quarterly reserved space in 2023.

The rise in reserved space indicates the cycle may be near its bottom, according to JLL, which also said that although vacant space has increased to 7.3M SF, or a vacancy rate of 15.4%, the Grade A vacancy rate is 7.8%.

“Occupational demand has been quite weak in Q1, and it seems unlikely that the market can absorb the additional space that will be delivered over the coming 18 months,” BNP's McCartney said.

“So vacancy is set to continue rising for the time being, and all vendors are having to weigh up a variety of factors before pulling the trigger on a sale — the prospect of rate cuts ahead, the prospect of having more comparable evidence and the potential for the occupier market to deteriorate further.”

But on the whole, the need for administrators and receivers to sell helps buyers and sellers to agree on price, and that helps transactions pick up. 

“In recent weeks, there have been several offerings that reflect this adjustment,” JLL Ireland Head of Research Niall Gargan said. “With the purchasers and vendors beginning to meet in the middle, we anticipate that transactions will steadily increase towards the end of the year and into 2025.”