Record level of deals still on the cards despite rise in stamp duty

Buoyant market: 5 Hanover Quay office block was the largest deal in the third quarter

Nova Atria, purchased by Mapletree Investments. Photo: Gareth Byrne Photography

Donal Buckley

ESTATE agents are sticking to their forecasts for record spending on investment properties this year despite the increase in stamp duty on commercial property in last Tuesday's Budget 2020.

Marie Hunt, director at CBRE Ireland, says that purchases of investment property had already reached €3.3bn in the nine months to the end of September.

"With the Green Reit sale expected to complete in Q4 2019, the Irish market is on target to exceed €5bn in investment spend for the first time," she says.

That deal will see UK property company Henderson Park complete the purchase of Green Reit for around €1.34bn.

CBRE estimates that 109 investment transactions extending to more than €1m in value traded in the first nine months of the year.

In total, investment spend amounted to €1.235bn in Q3 2019, bringing total investment spend in the first three-quarters of 2019 to almost €3.3bn.

A slightly lower €3bn level of investment sales was recorded by agents JLL in the nine months, so consequently its research director Hannah Dwyer is not quite as bullish in her forecast for the full year.

Nevertheless she is still sticking to her earlier projection of more than €4.6bn which would also be a new record.

Nova Atria, purchased by Mapletree Investments. Photo: Gareth Byrne Photography

Neither of the two women recorded any deals on Tuesday before the increase in stamp duty by 150 basis points to 7.5pc.

"Property deals take time to complete and cannot be done overnight," Ms Dwyer said.

Her research showed that as many as 15 deals in the first three quarters were for properties worth more than €50m and eight were greater than €100m.

"This is unprecedented activity, with a new trend emerging for larger-sized deals in the market," she added.

However six of the top 10 largest deals were for PRS residential rental properties which are not affected by the stamp duty increase and this residential sector accounted for 44pc, or almost half of the volumes.

In contrast offices, which are affected, accounted for only 28pc.

The largest deal in the third quarter was the 5 Hanover Quay office block in Dublin 2 which was purchased by Union Investment for €197m in a deal brokered by JLL. That suggests a saving of €2.95m in stamp duty.

A CBRE office deal saw Singapore trust, Mapletree Investments, purchase two office blocks in Sandyford, Dublin 18, extending to 31,125 sq m for around €167m. These had been known as the Atrium but vendor Blackstone renamed them as Nova Atria.

Mapletree also bought the 18,930 sq m Sorting Office, in Dublin's south docklands, from Marlet Property Group for €240m earlier in the year. These Mapletree deals reflect the upsurge in interest from Far East investors in the Irish commercial market.

JLL CEO John Moran said before the Budget that overseas purchasers accounted for about 65pc of volumes in the nine months.

"They are looking for scale and are showing greatest interest in PRS and office opportunities greater than €50m that are located in Dublin. Asian investors remain particularly active, as does German capital. Positively we also continue to see new entrants in the market."

However, while the total value of deals this year may still reach record levels, the stamp duty changes will affect values.

Colm Lauder, of Goodbody Stockbrokers, has estimated that the 1.5pc increase in purchasers' costs could feed through to a reduction of around 1.4pc in the value of commercial property portfolios.

This impact will vary from a 1.6pc reduction to Hibernia Reit's net asset value (NAV), to 1.7pc for Yew Grove Reit and 1.6pc for Green Reit.

On the other hand because Ires Reit's portfolio is mainly residential it will see a reduction of only 0.05pc in asset value.

Peter Waller, head of valuation and advisory at Cushman & Wakefield, agrees that the stamp duty increase may affect property values but saw no reason to change his forecasts for yields and rents which he published the day before the Budget in the latest Cushman & Wakefield Rent and Yield Matrix for Dublin and the regional cities.

He forecasts that prime Dublin office rents are likely to increase from a current range of between €624 to €667 per sq m to a range of between €635 and €678 per sq m within three years. In the three-to-five-year time span, office rents may reach as high as €689 per sq m.

Nevertheless prime office yields are likely to remain steady at between 4pc and 4.25pc over the next three years. In the longer three-to-five-year period, yields could extend slightly to between 4pc and 4.5pc, thanks to the rent increases.

While Grafton Street Zone A retail yields will hold at around 3.5pc to 4pc over the five years, he expects those at Henry Street to broaden from the current range of 3.75pc to 4.25pc over the next three years to between 4pc and 4.5pc in the three-to-five-year time horizon.

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