The third quarter was a busy one for the Irish investment market, with total turnover reaching €529m, making it the strongest quarter in 2017 thus far. Adding to activity in the opening half of 2017, the year to date total now stands at €1.3bn. The market is continuing to see a large volume of lower value deals transact. In the year to date, 145 transactions have been recorded in the market, 75% of which range between €1m and €10m in value.
Investment flows in 2017 continue to be led by the office and retail sector, however perhaps the most notable trend emerging from 2017 is the presence of off-market transactions. In the year to date, approximately €272m, or 21% of total investment turnover comprised off-market deals. Commenting Marian Finnegan, Chief Economist, Cushman & Wakefield noted; This increase in off-market deals is notable, it represents a twofold increase on the same period last year. Furthermore, it is also reasonable to assume, that due to the nature of off-market deals, the share of such transactions could in fact be higher.”
Market intelligence indicates that the lack of supply in the market over the past twelve months has been a key catalyst in this trend. Purchasers are now looking beyond what is available on the market and are actively approaching possible vendors in order to acquire product.
However, Budget 2018 did contain two important policy changes which will impact the investment market, the first of which should see supply increase. Positively, the CGT exemption holding period, initially introduced in 2011, has been reduced from seven to four years. This should result in a rise in supply over the year. For illustrative purposes, in 2012 and 2013 approximately €2.4bn worth of investment transactions occurred, across almost 130 deals. Although we have already witnessed a number of re-trades in the market, period this provides the potential for a significant volume of stock to be launched to the market, earlier than anticipated.
Secondly, Budget 2018 saw the government increase commercial stamp duty from 2% to 6%, reversing a reduction introduced in 2011. Market participants suggest the policy change will most likely have an impact on asking values over the short term. However, it is likely that Dublin, and increasingly Cork, will continue to attract investment, while the immediate impact may be experienced the most in regional Ireland and for non-core product.
Looking towards the final quarter of 2017, just over €200m was sale agreed at end-September, with a further €360m available on the Irish investment market. It is anticipated that investment totals at year-end will reach in excess of €1.75bn. This has the potential to be higher, if any big ticket assets were to close before year end.
In conclusion Ms Finnegan noted; “The Irish Investment market has returned to a more sustainable level in 2017, after three years of exceptional capital flows into the sector. However, there may be an uplift in the supply of property coming to the market in the short term due to the positive policy changes in relation to CGT in Budget 2018.”
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Cushman & Wakefield is the commercial partner of the Sherry FitzGerald Group in Ireland.